Try These Time-Saving Tips to Stress Less Next Tax Season
Looking to panic-proof your next tax season? Check out our post-tax day hacks and get ahead on managing business tax all year long.
Updated April 2022
Another Tax Day has come and gone. Were you fully prepared to file on time? Or were you scrambling to gather all of your tax forms at the last minute? If you’re a person who dreads Tax Day, you’re not alone. Nearly 25% of Americans wait until the last two weeks before the deadline to prepare their tax returns — which can lead to all sorts of tax blunders, including late filings, miscalculations, and other errors that can delay refunds, or worse, result in tax penalties.
Yikes. Luckily, we’re here to give you some breathing room and help you avoid the stress-induced tax headache. Our list of post-Tax Day hacks can help ease the stress of tax prep and make it more cost-effective so you’ll be smooth sailing into next year’s tax season.
Tip #1: Clean Up Your Books
You probably know having a comprehensive bookkeeping system is vital to the management of your small business, but did you know how important maintaining accurate bookkeeping is to filing your tax return? Your business’ income tax — a percent of profits paid to the federal government — is based on the money you make and spend throughout a given timeframe.
The most important piece of managing your tax prep is finding a bookkeeping solution that works for you and your business.
Tracking your cash flow in detail is key to managing your bottom line. Luckily, most bookkeeping software can record incoming and outgoing transactions and accounts for later use in your tax return. You’re busy running a company, so having a convenient and straightforward way to track this information allows you to focus on your business.
The most important piece of managing your tax prep is finding a bookkeeping solution that works for you and your business. The good news is you have a couple of options:
- DIY: Do-it-yourself options tend to be the most cost-efficient. In my experience as a CPA, I saw business owners with everything from an Excel spreadsheet to putting pen to paper in an accounting ledger. My suggestion to clients was always to make it as easy on yourself as possible — that way, you can spend less time bookkeeping and more time managing your business and building relationships with your customers. DIY Excel spreadsheet bookkeeping may be easier for some businesses, and not for others.
- Bookkeeping Platforms: When managing a spreadsheet becomes too cumbersome, many small business owners turn to popular bookkeeping platforms. Not sure where to start? Spend an hour browsing the top bookkeeping options* (such as QuickBooks, Wave, Xero, etc.), and find the one that offers features to streamline your bookkeeping, such as cloud-based storage and automated tools to help you save and plan for tax payments. Then, all you have to do is connect your business bank accounts and credit cards and begin sorting your income and expenses in the new app. Many of these platforms include tools that automatically sort recurring charges (i.e. software subscriptions, office supply charges, etc.). Get this process in place early and check it monthly, and you’ll save yourself a lot of panic come tax season. You’ll also have financial details ready if you need them for other purposes.
- Outsourced Bookkeeping: If you have room in your budget to outsource your bookkeeping, this option can save you even more time. Some options for these services include Bench Accounting, which will provide a dedicated bookkeeper and software to track your business finances for a flat fee. Software like Xendoo and Pilot also offers services like accounts payable, accounts receivable, purchase orders, sales orders, and payroll.
Tip #2: Save & Organize Your Receipts
As a CPA, I got a lot of questions about whether keeping receipts is still required in our increasingly paperless world. At one point in time, before computers and cloud bookkeeping, the only way a client could show proof of purchase was with a physical receipt that corresponded to the company’s accounting ledger. The idea was that a receipt verifies what you say to be true in your books. Now that everything is digital and stored in the cloud, do you still need to keep receipts? My answer: it can’t hurt.
If you are audited, the auditor may ask to see confirmation of purchases, so it’s best to have receipts on hand. I have been involved in audits where the auditor accepted bank/credit card statements as verification. However, sometimes those statements are vague and don’t give much detail outside of dates and amounts. Because there's no way to know what an auditor will ask for, it’s best to build and maintain a habit of keeping and tracking receipts.
Be sure to request receipts for cash transactions made for your business, especially when a business is reimbursing you for a purchase paid with personal funds. This sounds daunting, but the good news is there are simple ways to do this that don’t involve a large shoebox:
- Bookkeeping software: QuickBooks and other similar bookkeeping tools have a receipt scan feature that allows you to scan a receipt into the app, and that scan is then read and saved in a virtual receipt box in your account. Once you take the photo, you can recycle the receipt. If you haven’t done so already, you can then create an expense for the purchase in your virtual shoebox that will match your bank transaction history.
- Scanning apps: An alternative to the above is a scanning mobile app, which allows you to use your smartphone to take a photo and turn it into a scan of any document. This is a good option if you primarily use your business credit card when making purchases and need to trace these transactions back to a credit card statement. When you use a scanning app, the scanned receipts are stored as digital documents that serve as a backup of the physical receipt. Keep your receipts for four years (statute of limitation period), and then recycle them.
Tip #3: Track Your Miles
Mileage tracking is one of the most ignored areas of all tax deductions. And understandably so — it can be daunting to think about tracking the miles you trek in the name of your small business. Who has time for that?
Take a second to think about your business structure — maybe you are home-based and do everything online and therefore don’t need to track miles. But if you’re running a business that includes travel — whether to visit clients or provide services — you should track your miles.
As of January 2022, the general rate for business use is 58.5 cents per mile. Medical and moving services can claim 18 cents per mile, while charitable organizations can tally 14 cents per mile for their deductions.
Every mile you drive for your business could qualify as part of your deduction on your tax return, and many companies calculate this by multiplying their total annual miles by the rate for their industry. It’s important to note that the IRS has cracked down on companies claiming this mileage deduction, expecting accurate proof of miles driven.
Thanks to technology, you can easily keep accurate records of the miles you drive. Examples of tools you can use to do this include MileIQ, SherpaShare, TripLog, and Hurdlr. These apps all do the same thing: track the miles you drive so you can keep a clear record and categorize them as business or personal. At the end of the year, you’ll have a handy report with exact mileage, and voila, you can easily create a deduction for the miles you’ve driven for your business.
Tip #4: Create a Tax Deadlines Calendar
Tax Day isn’t the only tax filing due date you should be aware of. There are a few tax deadlines that happen in between the more well-known annual tax days that small business owners need to keep track of, including:
- Estimated Tax Prepayments (due quarterly for federal and state income tax)
- Sales Tax Payments (usually due quarterly or monthly)
- Payroll Tax
- State Annual Report
- Business License Tax
- Business Property Tax (if applicable)
It’s estimated that small businesses pay billions each a year in penalties and interest due to late filings and late payments. Knowing what’s coming due can help you budget better, so you won’t be trying to figure out how to cover a late fee you may not be able to afford. Also, keeping a calendar of tax deadlines helps prevent penalties and interest because you filed late. Fortunately, there are software solutions that can make this process easier. Platforms like ComplYant can remind you of all applicable due dates, help you budget for your taxes, and easily maintain important documents.
Don’t just think about what your business is today; think about what it can be in the future — and prepare for that.
Tip #5: Think Big — And Prep for Business Growth
When I ran my accounting practice, I gave this advice to all new business owners: don’t just think about what your business is today; think about what it can be in the future — and prepare for that. A company may only have $1000 in its bank account, and the owner may not see a need for extensive bookkeeping or using apps to manage finances and track deductions. But it’s better to set up a comprehensive bookkeeping system early on so that managing the finances doesn’t become overwhelming as your business grows.
It’s much easier and more cost-effective to start with a straightforward process for bookkeeping, as it can be time-consuming and costly to sort through a complicated web of past transactions later. If you start when your business is small, you can build a solid process that will grow with your business.
My clients would often try to hand things over to me without understanding what was going on in their business’ finances, which made things more difficult. More importantly, failing to maintain oversight of your finances can leave you at risk of becoming a victim of fraud. You wouldn’t give your personal bank accounts to someone else to manage without your direction, so why do that with your business? It’s best to not assume you can simply hand your finances off to a third party, as maintaining your understanding of the financial health of your business is vital to your success.
A phrase I hear all the time is that “you don’t know what you don’t know.” And while that’s true, hopefully after reading this you feel like you know a little more. If you take the time to set up some good processes for your business, you’ll save yourself loads of time, headaches, and money in the long run.
Be Well. All our best.