Cloud accounting and your accountant/bookkeeper make powerful allies, especially come tax time.
Cloud accounting is an incredibly important part of any small or growing business at tax time, and year-round. It makes it easy to invoice clients, track time and expenses, accept online payments, and create estimates and proposals. Its ease of use makes it a powerful ally, especially come tax time.
One in three small businesses spend more than 80 hours each year on federal taxes. That’s two full work weeks doing taxes that people could have spent working with clients, growing their business, or just catching up on hobbies.
So how does cloud accounting help?
Cloud Accounting Saves Time, so You Can Focus On Growing Your Business
A cloud accounting solution, like FreshBooks, stores all your business information, client information, and tax data in one place. This makes it easy and accessible to your employees, accountant, financial adviser, bookkeeper, investors, or anyone else you authorize to view the information and files. This means you spend less time finding the information and tax documents you need to plan for and prepare for tax season.
Whether you’re trying to decide on the most tax-beneficial way to sell an asset or send year-end reports to your accountant or bookkeeper, everyone involved has real-time access to financial data. It’s easier to assess information and determine whether or not you can take advantage of legitimate tax deductions in order to boost your tax return. Because let’s face it, no one likes doing taxes, but we all like getting a return…or reducing the amount we have to pay at tax time.
Need a snapshot as to how things are going at a certain point in the year? How about filing your taxes at the last minute? Either way, cloud accounting is the single source of truth for your financial data. Your accounting system has all the information related to your business and taxes, which makes it convenient and efficient to find and reference.
Things that used to take hours can take just minutes on the cloud. This fundamentally changes the way you run your business and reduces how much you worry about your tax refund.
Cloud Accounting Creates Accurate Tax Estimates
As a small business owner, you’re required to make quarterly estimated tax payments throughout the year. Paying at least 110% of the taxes you owed last year will typically prevent you from owing penalties for underpayment. If your business is more profitable this year than last, though, you could end up owing a lot at tax time, which means any tax refund is lost.
Cloud accounting allows you to understand the money going in and the money coming out of your business better, which gives you a real-time view of your money, cash flow, financials, tax return, and all that other good stuff that makes running your business worthwhile.
So you don’t have to guess what you’ll owe on your tax return at tax time. Simply share your year-to-date numbers with your accountant or bookkeeper and get an accurate number for your estimated tax liability. You can avoid underpayment penalties, accidental fraud, and unpleasant surprises at tax time.
Cloud Accounting Ensures Compliance at Tax Time
Tax time isn’t just about preparing your federal and state income tax returns. You may need to issue W-2 forms to employees and issue W-9 Forms and 1099-MISC Forms to independent contractors, vendors, and suppliers to whom you paid $600 or more during the calendar year.
Form 1099-MISC is used to report miscellaneous payments made to nonemployees, like independent contractors, to the IRS. You’re required to issue a 1099-MISC to someone based on two thresholds:
- You’ve paid at least $10 in royalties or broker payments, in lieu of dividends or tax-exempt interest
- You’ve paid at least $600 in services, rents, prizes or awards, and other income payments
You can find the full list of payments that qualify for a 1099-MISC on the IRS website.
If your records are in spreadsheets or on paper, figuring out who needs one of these informational returns, and how much you paid them can be time-consuming and frustrating. But when your data is in the cloud, it’s as simple as running a report. FreshBooks integrates with several apps, like payroll software Gusto, to provide greater efficiency and the ability to automate even more processes at tax time.
In recent years, the government has increased the penalties for filing late or inaccurate 1099s. Additionally, the deadline for sending 1099s to recipients has moved up. So this is one tax-time benefit of cloud accounting you don’t want to ignore.
Get a Tax Refund and Audit-Proof Your Business
Cloud accounting helps you keep all invoices, receipts, and deposits in one place. Not only that, but it enables you to tie those receipts and records directly to transactions. Whether you’re in the office or have employees traveling around the world, you can snap pictures of receipts and attach PDFs to any transaction.
At tax time, your accountant can quickly validate and substantiate the transactions. They can also ensure that expenses are assigned to the right categories. You won’t miss expenses, so you’ll have more money in your pocket at the end of the year.
There’s no guarantee that your return won’t be selected for an IRS audit. But you can feel confident that if you are audited, you won’t have legitimate deductions denied because you can’t find the receipts.
Use Your Accountant At Tax Time
It’s important to understand that while easy-to-use accounting software like FreshBooks makes it easy to manage your books and do your taxes on your own, your accountant is still a valuable asset year-round and at tax time.
There are a lot of tax credits that apply to individuals like the earned income tax credit or the child tax credit, which most people know about, but your accountant can ensure your business takes advantage of every tax credit and advantage it can as well.
FreshBooks let you bring your accountant on board with accountant access to the information they need and restrictions on the information they don’t.
Your accountant can also assist you with advisory services to help you grow and scale when you’re ready, or hunker down and take a more conservative approach when you’re not.
Remember, your accountant knows the tax system, tax laws, and has expertise that the majority of business owners don’t.
Cloud Accounting Keeps Your Information Safe and Secure
You may think your business is too small to be a target for identity theft. But over the past few years, it’s become apparent that identity theft is an issue for small businesses and their accountants. Why? Because small businesses typically have less robust security systems in place. Plus, accounting firms are treasure troves of the kind of personal information scammers collect.
Don’t be fooled by the misconception that keeping sensitive financial records on your computer is safer than storing them in the cloud. When you need to share information with your accountant or bookkeeper, digital files sent via e-mail or hand-delivered hard copies are vulnerable to falling into the wrong hands. E-mails can be intercepted, you can lose information in a hardware crash, or on a misplaced or stolen USB drive or paper file. Worse yet, you may put your employees’ or clients’ personal information at risk.
Moving that information to the cloud with a secure connection gives you the same level of control over who has access to it. With FreshBooks cloud accounting, you can rest assured that security is rigorously maintained. And it’s not your job to stay one step ahead of identity thieves.
Most of the problems that arise during tax time stem from being ill-prepared and uninformed. Using a cloud accounting solution to properly manage your financial data can help you reclaim your time. So the only question that remains is, what will you do with the 550 hours you’ll save this year by using FreshBooks for your accounting needs?
Give the Cloud a Try at Tax Time with FreshBooks
Make this the year you don’t fret about tax time. With FreshBooks, you can automate your invoices and expenses to save time, easily create reports, and trust all your personal business information is secure on the cloud.
The tax deadline is only a couple of months away, and to ensure your best refund check, direct deposit, or smallest tax payment possible now is the time to sign up for a free 30-day trial with FreshBooks.
Updated August 2021.