A Taxing Endeavor: 3 Tips to Take the Stress Out of Tax Season
by Michael Burdick, on Apr 17, 2017
This blog also appeared on SMB CEO, which provides resources and knowledge for the small business CEO.
Benjamin Franklin famously quipped that only two things are certain in life: death and taxes. Given that inevitability, it might seem surprising that so many business owners struggle during tax season.
Entrepreneurs are typically so focused on growing their companies’ products and services that taxes become an afterthought. Most people don’t think about taxes until the last minute, so they’re not ready when it’s time to file. This ends up making the process more stressful than it needs to be.
This minor annoyance can morph into a major issue, disrupting day-to-day business activities in the process. A survey of small business owners found that 73 percent felt federal taxes had major to moderate effects on their routine operations.
Making matters worse, tax code is extraordinarily complex. The majority of small business owners claim they spend more than 40 hours a year dealing with federal taxes, with 40 percent spending more than 80 hours a year on taxes.
The financial side of tax season must not be ignored, as about half of small business owners spend more than $5,000 annually on accounting fees, legal fees, and other associated costs. Time spent coordinating tax documents and filing paperwork results in lost productivity, as small business owners are unable to focus on their regular duties amid the chaos.
While the mountains of paperwork induce headaches and panic among many business owners, tax season doesn’t have to be such a negative experience. A little preparation and foresight can go a long way.
How to Ease Tax-Season Tension
Taxes will always be a necessary evil, but there are a few strategies businesses can implement to make the filing process easier:
1. Allow yourself ample time
Most tax deadlines aren’t flexible, so waiting until the last minute and hoping for an extended deadline won’t cut it. Your tax accountant will also likely charge extra if you ask him to prepare your taxes at the last minute.
Start the conversation as soon as possible by asking your accountant what he’ll need far in advance. This will give you adequate time to prepare the necessary documents. When you get on your accountant’s good side, he’s more likely to go the extra mile to identify potential deductions and credits.
And don’t wait to remit your estimated taxes. If you’re an individual, sole proprietor, or S corporation filing at the individual level and you expect to owe at least $1,000 in taxes, you should file quarterly estimated taxes. The same is true if you have a corporation and expect to owe at least $500. Waiting until filing time to pay Uncle Sam can lead to penalties and interest.
2. Do your homework ahead of time
You need to provide your tax preparer with everything he needs to do his job. If your financials are in good shape, your tax accountant simply needs the proper paperwork to begin the filing process.
Work with an experienced bookkeeper to ensure your financials are in order — this keeps your tax accountant from having to sift through a cluttered mess when tax season rolls around. It will also save you money, as your tax accountant would likely charge more to make sense of the chaos — more than it would’ve cost you on the front end. Staying on top of your financials will also help you analyze cash burn, calculate customer acquisition cost, and measure profitable revenue streams throughout the year.
3. Invest in your future
A great tax advisor might cost you more money that doing it yourself, but the upfront expense will pay off down the road. It’s similarly imperative to invest in your future by maintaining current information about your financial situation.
Ensure you have information about whether any of your employees got married or had children, and examine your team’s personal and paid time off. These seemingly minor details can determine whether the correct withholdings or deductions were applied. Create a plan based on your budget and financial forecast — including taxes and tax liabilities — and you’ll be able to see whether you’re on track.
Meeting with an accounting professional on a regular basis can help ease the stress of tax season. Sixty-five percent of more than 400 accountants surveyed suggest that business owners meet with their accounting counterparts at least once a month to keep them in the loop concerning their financial situations.
Tax season isn’t fun for most people, but preparing for the inevitability of taxes can be beneficial. In the same way taking up woodworking can help you with small projects around your home, studying tax preparation can teach you numerous things that will benefit your business. You’ll learn more about profitability and operating costs, which will help you successfully steer your company in the future. At the very least, your accountant will appreciate the forethought.