Getting Your Accounting Files Ready for Tax Time

Quick Tips to Make the Process Easier

 

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Getting Your Accounting Files Ready for Tax Time

For some small business owners there is nothing more difficult than getting your accounting files ready for tax time. Here are some tips to make the process easier! Learn more...

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by Joy Phelan on October 19, 2010

For some small business owners there is nothing more difficult than getting your accounting files ready for tax time. Here are some tips to make the process easier!

Getting Your Files Ready for Tax Time

The taxman inevitably cometh every year and you must prepare for his arrival. This is not to sound ominous but it is a fact of modern life that taxes must be made accurately and timely lest the long arm of the law catches up with the delinquents.

Fortunately, March and April need not be a stressful time. You can always prepare for tax time as soon as the tax returns have been filed for the current year has been filed. Here then are the most effective tips coming from the professionals.

Organize All Tax-Related Documents

First and foremost, you have to organize all of the tax-related documents that come to your desk. These documents include income-revenue, expenses and deductions that must be declared on the appropriate tax forms – credit write-offs; revenues from sales of products, services and other assets; interests on mortgages and loans; charitable donations; and other deductible business expenses.

You must create separate folders for these incomes and expenses with the related documents filed as soon as these are received. With such an organized filing system, your preparation of the tax forms will be a breeze.

It is also a good idea to record the transactions in the appropriate books of accounts as soon as these transpire. Small business owners are often advised to hire a bookkeeping service if the job is too much on the time and effort required in growing the enterprise.

Gather the Tax Documents

Around mid-January, you should start to receive the pertinent tax forms in the mail. These tax forms come from different sources depending on the sources of income and recipients of the expenses. For purposes of discussion, these are:

  • W-2 from employers
  • 1099-MISC for self-employment income exceeding $600 from the clients
  • 1099-INT for interest income and 1099-DIV for dividend income from account administrators
  • 1099-B for brokerage trades in bonds and stocks
  • K-1 forms for income earned from partnerships, small businesses and trusts
  • 1099-SSA for the Social Security income received

You will be receiving other tax forms and preparing other supporting documents for incomes and expenses not mentioned on the abovementioned forms. Ask your accountant about them so that a checklist of what you should be receiving can be ticked off as soon as receipt is made. Most accountants will provide you a Tax Organizer which is a checklist of things you provided last year so that you can provide similar documentation going forward.

Now, if it is the end of February and the tax forms have yet to be received, don't worry. You can always call the concerned persons or ask the IRS for assistance on the matter.

Estimate Your Taxes

The IRS will also require quarterly payments on taxable items when you are either:

  • Self-employed
  • Employed but the withholding taxes are insufficient to cover the year-end taxes due
  • Earning income over $1,000 where taxes are not withheld as is the case with alimony, dividends and alimonies.

If you decide to postpone the quarterly payments until April 15, you may be charged penalties and interests. You have to ensure that the estimated payment amounts are neither too small nor too large since the IRS is allowed to impose a penalty. We recommend using a tax calculator and consulting with your tax advisor. Tax planning needs to happen in the current tax year, beginning in October you should request an appointment to plan for the remainder of the year so that you and your tax preparer are on the same page with regards to your full tax picture.

When all else fails and taxes are still hell on your time, then a tax professional is the best person to contact. You have the benefit of certified public accountants, tax preparation firms and tax attorneys to help out during tax time.

Contact Karen Pepe