Tax season is here. Some approach this time of year determined to gather all the necessary paperwork early, while others avoid thinking about it until the last minute.
Are you ready? Here are five essential tips to ensure your taxes are filed correctly and on time.
1. Keep accurate records
- You must make sure all your expenses and transactions are recorded accurately to minimize the risk of errors on your tax return. Categorize each transaction accurately and consistently to avoid confusion.
- Review your business ledgers and reconcile your books. Make sure your balances come out correctly. If there is a problem – either an excess or deficiency – go through your numbers again to find the issue and correct it.
- Separate business and personal finances. You should have a dedicated business account for funds coming into and going out of the business. You don’t want to blur your finances; using business expenses for personal expenses will get messy.
2. Know your deductions
The IRS releases a list of new or adjusted eligible deductions for businesses each year. Research these and determine which expenses are deductible. Then make sure you have the proper receipts and documentation for your tax filing.
3. Gather your tax documents
This can be the most daunting task you face during tax season. But gathering all the paperwork required for your tax return will ensure your returns are accurate and won’t need to be amended later. Root Tax sends out a checklist of tax documents you need every year to make it easier for you.
Here’s a quick list of general documents you’ll need for tax preparation:
- Financial business reports: These may include your profit and loss report, income statement, balance sheet, and statement of cash flows
- Business assets: You will need to have documentation on your assets and fixed assets, including those you bought, sold, or depreciated last year.
- Business loan paperwork: If you took on a new loan last year, you’ll need to bring that paperwork. Also include documents of loan payments and accrued interest.
- Income records: This may include bank statements and invoices.
- Business expenses: Make sure these documents are accurately categorized as business expenses. These include receipts, invoices, bank statements, credit card statements, and property tax and mortgage interest statements.
- Deductible expenses: Make sure you have the proper paperwork for all of your deductions. Some types require more than just receipts, such as home office deductions and mileage reports. Root Tax can help you determine what is allowed and what documentation you need.
- Payroll data: Bring all your employees’ W-2s, W-3s, 1099-MISCs, as well as bonuses paid out and health insurance payment records.
- Inventory records: Have accurate counts of opening and ending inventory for the year.
You’ll probably need more documents based on your specific business. Root Tax will make sure to guide you along the way to make sure you gather everything you need.
4. Contribute the maximum to your Retirement Plan
For example, retirement contributions reduce your tax liability, so it’s a good idea to contribute as much as you can each year. The IRS currently allows you to make a total contribution of $6,500 for the year (or $7,500 if you are over 50 years old) to your IRA. If you missed making contributions in 2022, don’t worry – you can still make IRA contributions for the previous year until April 15 of the current year.
5. Set aside tax money
The general rule of thumb is you should set aside about 30% of your business income after deductions for tax liability.
Getting ready to file your tax return takes some time and planning, so earmark a few hours soon to gather everything you need. Once you’ve followed these tips and you’re ready to file, contact Root Tax to get things started. We will make sure to complete your return as quickly and efficiently as possible. Or if you just don’t think you’ll make it in time, talk to us about filing for an extension.