Tax season can be a stressful time for a business. Depending on the structure of your business and financial circumstances, your company’s tax situation may vary. But every year, the obligation is due.

Paying taxes isn’t fun for anyone, but limit the stress by preparing for next year, starting now. A little preparation helps both founders and their businesses prevent multiple tax-related issues including:

  • Over/under paying quarterly installments
  • Scrambling to turn in the proper documents
  • Finding someone to file for you, last minute
  • Missing something that lands you with fees and other unpleasant surprises

Ready to prepare for next season? Here is a list of common sense and actionable steps.

5 Ways to Prepare Your Business for Next Tax Season

1. Use Deductions to Better Align Expenses

You’ve probably heard the old adage, “takes money to make money”. Thankfully, the IRS understands this and has over a dozen categories of deductible expenses for businesses. A dollar of qualifying expenses is a dollar you can write off of your taxable revenue.

While some expenses fall outside the deduction policy, many common purchases do count.

Take some time to understand these categories and use that knowledge to create an accurate budget. Proactively planning deductible expenses is a whole lot better than scrambling to find receipts at the beginning of the new year.

Better align expenses by:

  • Using cash flow to purchase deductible expenses that will grow your business (beyond this year) and deduct those expenses for this tax year
  • Reduce spending that you can’t claim
  • Potentially find expenses that your company could use, but didn’t necessarily know it was a deduction (e.g. attorney fees)

2. Spend with Tax Credits in Mind

One way to lower the tax burden is via deductible expenses. Another way is to use incentives, like tax credits. While there are a number of credits, they do change over time. Typically, these credits fall into three categories:

  • Employee-related: Healthcare, childcare, and employee enrichment credits are a few in this category.
  • Energy/Environmental: Reducing carbon emissions, cleaner energy and other credits are available.
  • Research and development: The R&D tax credit has potential for businesses looking to improve processes.

Note: It’s a good idea to have a conversation with an accounting professional who understands the changing landscape of tax credits.

3. Get and Stay Organized

You’ve got your categories set and understand potential credits for next year. Now, it’s time to keep track of those expenses. What’s the best way to regularly maintain your business finances?

Reporting and sound accounting. And it’s not simply expense reports.

  • Monthly or quarterly P&Ls
  • Rolling cash flow forecasts
  • Regular reports for metrics that really drive your business (i.e. number of leads, revenue per client/employee, etc..)

Not only will these reports make filing next year seamless, you’ll also have accurate quarterly payments. Which leads to the next point.

4. Focus on the Accuracy of Quarterly Payments

Individuals often like getting a “tax refund” when they file. It’s like a savings account that the government holds for them. Talk to most financial advisors and they’ll tell you it’s a horrible idea to overpay for anything—including your tax obligations.

Pay too little and potentially get hit with interest and late fees. Too much and that’s cash you could’ve used to reinvest in your business (maybe leading to more deductions). But paying the right amount, that’s what any business wants.

No fees, and every dollar in your direct control.

The previous reporting tip goes a long way toward preparing your business for quarterly payments.

A forecast predicts revenue and detailed expense budgets show qualified upcoming deductions. Based on that data, your installments will be very close to the target—meaning you’ll avoid fees while keeping the right amount of money in your accounts.

5. Avoid Common Tax Season Mistakes

There are plenty of mistakes made when filing. For example;

  • Not sending 1099s to contractors on time (or at all)
  • Claiming improper deductions
  • Miscalculating what you owe

Other mistakes happen throughout the year, well before you even file your taxes. Common examples here include:

  • Poor expense records: Detailed records are necessary to make sure you’re not found without proper documentation for taking deductions.
  • Not depositing withholding taxes: You’re required to withhold taxes for any staff working directly for your business (including yourself, if you draw a salary).
  • Failing to report income: Buy and sell crypto with company money for a gain? Barter for something with a supplier? There are a number of ways that you can gain outside of direct sales. Those need to be reported, too.

Always Be Prepared for Tax Season by Partnering with Founders

Know qualifying deductions and align your expenses accordingly. Take advantage of every credit that makes sense for your business. Create meaningful reports to pay exactly what you owe to the IRS. And avoid common problems that plague so many startups and small businesses.

Partner with Founder’s CPA and our experts will help you plan your business taxes to avoid undue burdens and ensure you’re ready to file quickly all year round.

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Tax
Curt Mastio
Post by Curt Mastio
Jun 11, 2024 10:35:22 AM
Curt Mastio started Founder’s CPA in 2017 and currently serves as the Managing Partner of the firm. After obtaining both his Bachelor’s and Master’s degrees in accounting from the University of Illinois in Urbana-Champaign Curt started his career in Big Four public accounting. Shortly thereafter Curt served as the Chief Financial Officer of Storage Squad began his stint as an Adjunct Instructor at Northwestern University’s Farley Center for Entrepreneurship and has been teaching Accounting & Finance to undergraduate students for 6+ years. In his current role Curt oversees strategy, operations, and business development at Founder’s CPA. Further, Curt has experience working directly with 200+ startups and small businesses providing accounting, tax, and outsourced CFO services. His industry expertise lies in the SaaS, Blockchain, Marketplace, and Fintech industries. He has served as a key advisor working directly with startups that range from pre-revenue to companies generating over $30 million dollars a year in revenue. Lastly, he serves a key role working directly with the firm’s clients that have collectively raised over $200 million in venture capital funding to date. Curt is also an active advisor, mentor, and investor in the startup ecosystem. He has facilitated numerous workshops, webinars, and presentations to incubators and other startup-centric organizations. He is also an active mentor for Techstars in both Chicago and Iowa. Outside of his daily professional duties Curt is actively involved with Beat the Streets Chicago and was a founding member of its Young Professionals Board. His efforts in both leadership and community involvement were recognized when he was awarded the Illinois CPA Society’s Outstanding Young Professional Leadership Award in 2020. He was also a panelist at their annual conference in 2022 where he spoke about his experiences starting and operating a public accounting firm. He maintains an active Certified Public Accountant designation that he obtained in 2014. Outside of work, Curt can be found spending time with his friends & family including his dog Rufus. His hobbies include golf, boating, cooking, reading, and attending sporting events & concerts.