The current year-end filing deadline is looming, which has many entrepreneurs and freelancers scrambling to prepare their paperwork.
While you’re getting your documents ready for your current filing, why not get your business ready for next year’s filing? According to a report by the National Small Business Association, about 20% of small businesses spend 120 hours each year on taxes. That’s a major chunk of time spent, often at the last minute, on gathering receipts, calculating deductions, and slapping it all together for your year-end filing.
But it is possible to stay ahead of the curve—especially if you start now. By getting yourself organized, you can avoid similar headaches next year to make filing your business taxes as simple and stress-free as possible.
We know 2017’s taxes are still top of mind, so here are a few tactics you can employ to ensure a smooth filing next year.
To move forward, sometimes it’s necessary to take a peek into the past. Before getting ready for next year’s tax filing, many small businesses could benefit from performing a post-mortem of their most recent year’s tax filing.
During a deep dive into your bookkeeping, some of your crucial numbers may jump off the page. Did your business spend entirely too much on office supplies? Or did you leave some major deductible expenses on the table?
Regardless of your findings, this exercise could prove useful when setting up your business for next year’s filing. Any misses or mistakes from the current year will still be top of mind, so it’ll be easier to avoid making the same errors twice.
Next, you’ll need to understand all that data you’ll have to gather for next year’s filing. You should track a variety of income and expenses, including:
- Gross receipts from product/service sales
- Returns and allowances
- Business account interest
- Cost of inventory
- Cost of materials and supplies
- Advertising expenses
- Utility costs (like landline phones, fax lines, etc.)
- Travel expenses (including mileage costs)
- Commissions paid to subcontractors
- Depreciation on business assets
- Cost of business insurance
- Office supply costs
- Wages and salaries
While this isn’t a detailed list of expenses you’ll need to track, H&R Block offers a complete checklist of relevant expenses and income. You can keep track of most of these categories digitally, but just sit tight—we’ll address how to monitor those in just a moment.
For written records, start storing them in an accordion folder or similar filing system. Some of the most common paper receipts and documents you’ll want to keep include:
- Receipts for charitable donations
- Medical expenses
- Any pay stubs
- Investment summaries
- Property tax bills
Set up efficient systems
Once you know what you need for your year-end filing next year and beyond, it’s time to put systems in place to track that data. That means stashing away random receipts in a shoebox is no longer an option.
Freelancers and small business owners can use accounting software to keep track of revenues and expenses. To stay ahead of next year’s tax filing, establish some good habits like:
- Uploading digital receipts directly to Wave to categorize and monitor expenses
- Using a receipt scanning app to take a picture of receipts with your phone to digitize them for safe-keeping
- Keeping track of bills to see how much your business is spending in each category (like website hosting fees versus rent for your office space)
- Generating and managing invoices in one place using a tool like Wave
- Setting up automated invoicing for recurring invoices
- Scanning and saving important tax documents like investment summaries and property tax bills to a folder on your computer
Schedule regular check-ins
The lead up to your year-end filing shouldn’t be the only time you check in on your business finances. Sure, entrepreneurs and freelancers are exceptionally busy. But even stretched-thin business owners can find a little time—even just an hour or two—to ensure their financials are organized.
To avoid surprises and to run your business efficiently, maintaining visibility into your finances is crucial. And once you’ve gathered the appropriate paperwork and established some expense tracking systems, “checking under the hood” of your business becomes far simpler.
Set some time aside in your calendar once a month or once a quarter to dive deep into revenues and expenses. This simple practice can prevent any last-minute surprises from popping up at tax time. Create some calendar alerts to ensure you don’t forget.
Regularly reviewing your books can also empower you with insights to run your business better. For example, a quick look at your business finances could reveal that the average time it takes for clients to remit payment is 60+ days. To curb outstanding invoices and improve cash flow, you can set up automatic reminders for clients to pay their invoices after 15 or 30 days.
And making this kind of high-impact change isn’t that difficult—it can come from a little bit of data and a quick review of your books.
Plan ahead for major changes
In the midst of all this preparation, you’re likely thinking about the things to come in the year ahead. What major changes will you and your business celebrate in the next 12 months?
Some of the milestones that could affect your filing include:
- Getting married
- Having children
- Major equipment purchases
- Buying/selling commercial or personal property
All of these events can affect your taxable income and may require additional documents when submitting your taxes.
To help offset any increase in taxable income from these major milestones, plan ahead with the following tactics:
- Maximize retirement contributions: Saving for retirement not only prepares you for living well in your golden years, but it also lowers your taxable income. Contributing to a qualified savings plan like a 401(k) or an RRSP can help you take advantage of the powers of compound interest while also saving your business some serious cash on your tax bill.
- Make charitable donations: Helping out qualified non-profits is a win-win for businesses and charities alike. If you make a donation before the end of the year, you can deduct the contribution from your year-end filing to reduce your tax burden.
Moving forward with next year’s filing
Now that you have a firm grasp on some strategies to get organized for the year ahead, you can successfully prepare your business to avoid any last-minute tax blunders. While these preparations may require a little extra work up front, it’s a surefire way to ensure you won’t run into any nasty surprises next year. And no surprises means no anxiety.
So, go ahead and get started—your future self will thank you.
The information and tips we’re sharing in this article are meant to be a starting point for your year-end tax prep, so you can be informed and feel confident when working with your accountant. Be sure to check with a tax expert in your country or region for any specific advice you need, as each business (and tax district) is different. As our lawyers would say: “This article is for informational purposes only. It should not be considered legal or financial advice.”