How to Prepare for a New Tax YearJake Koppenberg
October 23, 2012 — 1,626 views
How to Prepare for a New Tax Year
Don’t bother raising your hand and calling yourself out on your less-than-stellar tax-record filing system in the past year; you know who you are…
Receipts are scattered throughout your home or office, and your files are a jumbled mess of outdated and inaccurate information. Your “I know where everything is” mantra isn’t cutting it anymore. Your once-yearly appointment with an accountant is only days away, and you’re tunneling through mountains of papers, swearing you left your ledger in the desk drawer, and yanking out crumpled parking receipts from the door of your car.
You know you can do better, but it always seems like such a tremendous hassle to organize your finances throughout the year. Who has time?
What you need is a system; a tried and true system for being the most organized small business owner on the block. If being organized for the sake of being organized doesn’t excite you, consider the likelihood that it may very well help you reap some serious financial benefits on your tax return.
Now that we have your attention, let us inspire you with easy tax preparation tips for the new tax year:
Educate yourself on changes in tax law.
Although your accountant will likely keep you in the loop regarding new tax laws or changes to existing tax laws, it will benefit you to educate yourself on these changes so you are aware of the tax deductions available to you in the coming year. For example, changes in tax laws may influence everything from your business purchases to your hiring decisions.
Make it a point to talk with your accountant about tax laws and how they are expected to change in the coming years. Use the expertise of your accountant to get the information you need. Your accountant should have the needed CPA requirements to answer any questions you may have about your taxes. You don’t need to learn accounting and bookkeeping yourself, but you do need to be a pseudo-expert in tax law – at least to the extent that it applies to your own small business.
Keep organized and detailed records of all aspects of your business – no exceptions.
Invoices, bank statements, receipts, and credit card statements relating to your business should always be kept. Take a moment to jot down the purpose or reason for the receipt, and include any other information that may be of importance.
You should be able to provide your accountant with a clear record of your accounts receivable and your accounts payable. If you simply can’t find the time or the energy to maintain these records, then hiring a bookkeeper is probably money well spent.
Keep a running tab in the form of a balance sheet.
Compiling and organizing your records is a great first step when preparing yourself and your business for a new tax year. But if there are inaccuracies or missing information, you must have a system for catching them. This is where your balance sheet comes in.
Your balance sheet doesn’t need to be complicated; simply keep a running tab of your assets, which likely includes your inventory, equipment and accounts receivable, and your liabilities, which likely includes your accounts payable and any loans.
In addition, it is also a smart idea to keep a close eye on your cash assets through a bank reconciliation.
These tools will allow you to keep your finger on the pulse of your business throughout the year and will provide you with a clear picture of where your business’ finances stand at any given time.
Bring all questions and concerns to your accountant in a timely manner.
The end of the year is not the ideal time to bring up concerns you noticed months ago. Keeping accurate records, including detailed balance sheets, will provide you with tools necessary to track your own finances.
For example, if you notice an increase in profits during the first few months, it would benefit you to bring this to your accountant’s attention so you can discuss ways to reduce your tax bill or better budget for an inflated tax bill. Bringing up issues with your accountant before the close of the year will likely provide you with more options.
Remember that the better prepared you are to handle your year-end taxes the more money you will likely save, both on your tax bill and on your accounting bill. You’d be amazed at what a little organization and forethought can do for your business’ finances – and your stress level!
I work with a team of accounting professionals at AccountingEDU.org. We collectively strive to present the most up-to-date and helpful accounting/CPA information for students and professionals