How do I prepare for tax time?
Q: Dear Ruchi, Tax time always brings up so much anxiety for me. I run my own business so things aren’t as simple as they used to be when I simply had my corporate paycheck. To be honest, I never know where to start when it comes to getting organized for the filing deadline. Do you have any advice as to how to prepare? Next year I want it to be seamless with minimal stress. I am ready to make a change!
A: I’m so glad you asked this question (and at the perfect time)! Tax day will be here before you know it and there are definitely some things you can start crossing off your list to relieve a little stress. Whether you’re already on top of things or need a bit of help, preparing for tax season can be much more systemized and simple. I’ve found that it’s all about organization and staying ahead of the game. Let’s walk through it together.
Something to remember for the future is to work with your taxes in mind all year long. For example, don’t wait until the end of the year to get your books up to date and record your income and expenses. It’s important to keep a close eye on everything coming in and out of your business as the year progresses. Your future self will thank you!
Besides keeping your books up to date, make sure to set aside tax documents, such as charitable contribution receipts, as you receive them. We’ve also spoken about ensuring you are paying quarterly estimated taxes throughout the year and saving for taxes so that you don’t have any major tax surprises. It’s important to stay connected to your CPA throughout the year to ensure you are planning accordingly in the case that your net income is much lower or higher than the prior year, to determine what is the best salary level for yourself (if your business is taxed as an S Corporation), to discuss options for saving for retirement, and to learn about any new tax rules or deduction possibilities that could impact you.
Here is a standard checklist to remember:
Keep your books up to date as the year goes on so you have a handle on revenue and expenses.
Have a solid idea of your net income and make estimated tax payments.
Connect with a trusted CPA to plan throughout the year. Don’t wait until after the end of the year.
Follow these tips and I sense you will have the smoothest tax time ever!
Here’s to your prosperity!
Ruchi