Tax season is one of the least anticipated times of year for small business owners, particularly when it involves the additional tasks of searching, sifting, sorting, filing and accounting. Our natural inclination is to procrastinate and, since the tax filing deadline is still a few months off, the pressure isn't intense just yet. There are, however, several advantages to getting organized well in advance of the tax-filing deadline.
1. Avoid errors and capture deductions
Since many small business owners don't have the time or the resources to update their accounting during the year, it is often left to the last minute. This can result in errors and missed deductions. By organizing your financial records and updating your accounting software now, you can ensure that you're minimizing mistakes and claiming the deductions to which you are entitled. You'll also have a lot more time to research and/or speak to your accountant about the inevitable questions that will arise.
2. Prepare for your tax liability
Many small business owners wait with dread for the moment when they're advised of their taxes payable. Despite the desire to be disciplined, the funds that should be put aside for taxes are often used as cash flow for the business. By determining your tax liability in advance, you still have several months to come up with any shortfall in taxes payable, and should know exactly where you stand. Of course, if you are getting a refund, filing your taxes as soon as possible should be a no-brainer.
3. Planning and budgeting
Being up to date with your accounting allows you to assess the financial performance of your business for the previous year and, in so doing, plan for the current year by using the prior year’s performance as a benchmark. If this is left to the end of tax season, the information compiled is less meaningful as you are already several months into the current year.
4. More time from your accountant
Although most accountants consider the months from January to April to be their “busy season”, they tend to be busiest in April since this is when the majority of taxpayers get their act together and submit their paperwork. By contacting your accountant early, you have a better chance of getting more of their time and attention.
5. Free up time and reduce stress
The knowledge that we have to submit our tax return, even if it is not imminent, contributes to stress that intensifies as we get closer to the tax deadline. By getting it done sooner rather than later, we can mitigate this stress and make the tax filing process a little more pleasant. Additionally, it frees up time to focus on the more important aspects of running our businesses. While procrastination can be extremely tempting, particularly when it comes to the tedium of accounting and tax preparation, filing early will lead to less stress and the freedom to focus on your clients and products, rather than the government.
Ronika Khanna CA, CFA is the founder of Montreal Financial, an accounting and financial consulting services business. After having worked as an accounting professional for several companies in Montreal and Bermuda including a big 4 firm, a multinational financial services company and a merchant services provider, she decided to launch her own business , focusing primarily on the accounting and financial needs of small business.