By: Melissa Stanger To quote Benjamin Franklin, "Nothing in life is certain but death and taxes." There’s usually more work involved for small businesses than for individuals when it comes to filing taxes, but that doesn’t mean it has to be more daunting.
We spoke to Greg Jones, CEO of the outsourced financial intelligence consulting company BookKeeping Express, and Glen Ross, founder of the tax preparer search site Prosado.com, and discovered exactly what small business owners need to know about filing their taxes.
Keep good records.
Keep everything in a file, says Jones. Hold onto receipts, pay stubs, charts of accounts, and any other paperwork related to the financials of the business.
Jones also advises to keep good records all year long. “Most small business owners don’t think about it until November or December, or even January of the new year to start planning,” he says, but the best time to start is January 1 of the prior year. Put your business plan into play on January 1st, and reconcile all your paperwork each month.
Disorganization is one of the most common reasons small business owners make mistakes when filing their taxes. The same way you should be keeping good records all year long, you should be organizing your records all year long.
“Organizing your bank statements is a good starting point,” says Ross. “Organize receipts for expenses, and enter it into some kind of software, ideally, such as Quickbooks,” so that it will calculate and manage for you until the time comes to file.
Being organized will do a few things for you, says Ross. “One, it’s going to make it easier to file. Two, it’s going to reduce your audit risk, and three, since audit risk can never be reduced to zero, it’s going to make it that much easier to provide the documents requested if you are audited. So organization is the key, really, to filing, to audits, and to successful audits.”
Know when to handle your own taxes ...
Some small businesses owners are perfectly capable of handling the company’s taxes on their own.
“A lot of small companies with few employees don’t have the resources or need to hire a bookkeeper,” says Ross. If you have everything in order and know what expenses you can deduct and what to file where, or if you have an internal accountant or bookkeeper, you may not need to hire someone externally to help you.
... and when to outsource the work.
For any businesses bigger than a couple of people, Jones recommends outsourcing.
“Time spent hunting and picking through financials versus running your business and trying to find a direction takes away from the ultimate goal,” he says. “I’d rather use somebody, whether I’m a one or two-person shop, or a hundred-person shop, that can do the best that I could not do, and do it functionally, efficiently and bring me a value.”
Have the work done right the first time around by a professional, says Jones, that way you can spend that time focusing on running your business.
If you get audited, don’t panic.
This is one time you should always call a professional; never try to handle an audit on your own.
“That would be like getting sued and trying to handle the lawsuit on your own,” Ross says. Tax professionals have generally been through this before, and know what an IRS auditor is looking for. They may also have a relationship with the IRS that’s been previously established, and this is in your best interest.