Tax day 2019 is Monday, April 15. Are you prepared?
There are many things in life that are guaranteed to happen with regular consistency, and taxes are among the top of that list. And unlike other events that occur on a regular basis that might be more enjoyable—Christmas, vacations, birthdays—the importance of being prepared for tax day is paramount to your business.
At the end of the day, the IRS is one of the few agencies that you do not want to be on the wrong side of the road from.
However just like the multitude of last-minute Christmas shoppers (who somehow may have forgotten that Christmas happens every year on the same day), the same can be said for those scrambling last minute to have their taxes done before the deadline.
Here are the essential tips to prepare this upcoming Tax Day and future tax days for that matter.
1. Have the Right Team
The last thing you want to do a couple of days prior to the tax deadline to handing in your taxes is to try and find a tax accountant and bookkeeper to help get your documents lined up.
One of two things that are likely to happen: you pay a lot of money for the convenience of last-minute tax preparation, you spend a lot of money for last minute bookkeeping, or you end up getting someone who does not know what they are doing because the price is right.
Either way, I believe it is essential to plan and have the right team to help you with your business. That means having an excellent bookkeeper, if you are not comfortable with managing your books and have an excellent tax-accountant who can advise you on tax strategies as the year progresses.
2. Be Prepared
Being prepared goes hand in hand with having the right financial team in your corner. The right bookkeeper will be able to keep your books up to date and allow for a smooth transition of work to the accountant come tax time. Having your financial records accurate, allows your tax accountant to easily identify your tax deductions.
Tax preparation for businesses also tends to differ compared to tax preparation for individuals in that businesses may need to submit periodic tax estimates. Failing to do so may lead to hefty fines or penalties at the end of the tax year.
While it may seem like an additional expense to have someone keep an eye on these things for you it may be saving you money in the long run. Your tax team can also help determine your tax bracket and assist with tax planning that allows you to be in a different more advantageous tax bracket.
The more you make the more taxes you pay. Your tax accountant will advise on how much you need to save, to prepare for your tax payments.
3. Proper Record Keeping
I cannot overemphasize the importance of proper record keeping. Keeping receipts of expenses is essential especially if you are claiming these expenses as deductions. Proper documentation can allow you to deduct a good portion of these expenses (your tax-accountant will determine the exact amount of your deductions).
Things like professional workshops and continuing education courses are just some of the things that you can claim as business-related deductions. Personal expenses and business expenses need to be separate.
The purpose of all business expenses needs to be stated on all business receipts. If you own a massage business, invest in a good accounting software, which allows you to keep all business financial transactions in one place.
4. Do-It-Yourself Taxes
I am a fan of many of the DIY home improvement shows. I often wonder for every successful DIY project highlighted how many catastrophic failed projects are out there. While, I suspect that with the right attitude and time many people can become proficient in DIY home improvement projects, DIY taxes are a different ball game altogether.
There are not many things out there that are ever-changing and complicated like the US Internal Revenue Tax Code. This is especially so when dealing with taxes for a business entity. Because of the complexity of this, I would never advise anyone to do their business taxes on their own unless they are a tax professional.
Not getting into trouble with the IRS is one reason to trust this to the professionals. Another is that you may be eligible for additional tax savings and working with a professional may help keep more money in your pocket.
Make sure you are working with a reputable tax professional and avoid anyone who would suggest you hide your income or take deductions that are not entitled to you.
5. Paying Your Taxes Late
It is never a good idea to be late with your financial obligations, and the consequences are often not pleasant. When it comes to the IRS, it is a big no-no, paying your taxes late. One of the reasons is that there are penalties that are levied by the IRS for late payment.
While I advise you to check with your tax accountant, these can often range from 0.5 percent to 1 percent per month (not per year) for income taxes that are not paid on time. The IRS also can levy additional penalties on top of the interest on what is owed for filing late.
It is not uncommon for this amount to be up to 5 percent of what is owed. If you file late and underpay on your taxes, another fine or penalty may be levied. The story keeps getting better (for the IRS that is) for those who after five months have not brought their accounts current. The penalties can keep increasing, and after five months it is not uncommon for these to total about 40 percent (again check with your tax accountant for exact numbers)
Either way, all of this can be avoided, and all of this can remain a cautionary tale.
Take home message: Be prepared. Taxes are due every year, there are no exceptions. Have an excellent team to help you navigate the complexities of the tax code, keep you updated on your books, and do not be late with your tax payment. If you cannot get your tax paperwork in on time, you should file for an extension.
About the Author:
Lozelle Mathai, MBA, CFEI is the owner of The Body of Accounting, which specializes in cloud based: accounting, bookkeeping and financial management services for health and wellness professionals.