Getting Ready for Tax Season

By December 19, 2013 October 29th, 2015 Accounting 101, Bookkeeping 101, Business 101, CEO Mindset, Taxes

Yep, it is getting to look a lot like tax season, a special time of year.  Fa La La La – perhaps we’re the only ones that jump straight to a Christmas song, did you? But in all seriousness, let’s look at a few common things that come up around this time of year with regards to tax season.

First off, we do want to mention that we understand, as business owner ourselves, that getting ready for tax season isn’t sexy or fun or even remotely appealing to most people. However, what can be sexy and fun and appealing is the money and time and headaches that you’ll save in the long run. If you prep, organize and throw just an hour a week at getting ready for tax season, your CPA or Licensed Tax Professional is going to sing your praises (and you might even see that reflected in your bill – for they won’t have any bookkeeping work to schlep through). So let’s look at a few common things that come up around this time of year.

1099’s – Do I really need to send them?  How do I know who to send them?

So as a business owner, yes you may need to send 1099’s.  We have a 1099 informational post here that  might help you with some of the more nuanced aspects of filing 1099’s for your business.

Office Use of Home – Yes it’s a true deduction IF you meet certain criteria. 

In case you do meet the criteria and your tax professional says it’s a go, then be prepared.  How many square feet is your residence?  How much space to you use 100% for your business?  Pull together all the expenses – utilities, repairs and maintenance, rent, insurance, property taxes – I recommend that you use a spreadsheet and capture the expenses by type and month.

Auto Mileage – A WAG is not going to cut it anymore!

In case you have been out of touch with the media, the IRS is doing a few more audits than normal and they have broadened their list of favorite industries to look at.  With this in mind, some of the items you use to be a little lackadaisical with could come into play if you were audited.  One of them is auto mileage tracking.  Yes – you need to track everyday the starting and ending mileage of all business trips and what you did on them.  Just capturing starting and ending mileage for the year is not going to work anymore, UNLESS your car is 100% used for business and you don’t use it for anything personal in nature (could happen if you have a delivery truck or vehicle use for job estimates or sits at your office during off hours).  Figure out a system that works for you – manual pad of paper in car; app on your phone; device in your car.

Self-Employment Tax Liability – It will get you EVERY TIME!

If you are Schedule C or an LLC single member, do you know if you have a tax profit or not?  By not tracking your business activity in an accounting tool throughout the year, you my friends are the ones that get that extra special surprise every New Year – YES you owe tax and there isn’t too much you can do to get around it!  Self-employment tax is one of those taxes that aren’t affected by how many “write-off’s” you may have.  It is based solely on your taxable profits.  Do yourself a favor and be in the “know” about your numbers throughout the year and put a little away for Uncle Sam each month.  While you are at, find a tax professional that can advise and guide you to stop those unexpected surprises from just showing up.

S-Corp Reasonable Wage – What does that even mean?

So you took the time to create an S-Corp to provide that extra level of protection for your personal assets – GREAT!  During the year, you’ve just been pulling out draws (or distributions) as fast as the cash flow allowed, maybe even thinking what a great tax loop that might be.  Well, think again!  S-Corps need to pull a reasonable wage and if you pulled out of your business $50k in draws, or perhaps 50% or more of that, dear ol’ Uncle Sam will want to see that as wage – because it is.  This is where your trusty tax professional comes into play.  They can guide you on what a reasonable wage is and perhaps even get you on a plan to pay monthly rather than just once a year – SO much better for your cash flow.  Either way, you better know by Christmas what you’ll be paying yourself so you can make all the necessary arrangements.

We recommend that you take some time now to prepare yourself for the New Year. We also recommend that if you are overwhelmed or frustrated, you still have time to look for a tax professional that guides you rather than simply processes the paperwork. And you can always connect with us!

Show Buttons
Hide Buttons