Accounting guru Eric Matthews from thatbookkeeper.com gives us a special preview of our upcoming Tax Thursdays series! We know a lot of small businesses struggle with taxes, so we’re hoping to help make this a little easier by featuring advice from leading accounting professionals every second Thursday from January to April. Don’t miss it!
For some of you, you’ve spent the whole year preparing for tax time. You make sure you ask for receipts from the cashier, mark what’s office supplies and what’s personal and even scan them to keep a digital copy, just in case. And then the moment that final tax slip shows up in the mail, you sit down and get started. An hour or two later, you’ve got the return triple-checked and ready to go.
For the other 99.9% of people, however, tax time happens a bit differently. The files to remember are in that 3 ft tall pile of “keepers” (a pile that also contains personal receipts, overdue utility bills, and 3 month old flyers). When you realize that the April deadline is looming near, the final few days usually turn into a blur. Fueled by panic and coffee, you manage to get to the end of the return. You have no idea if it’s accurate. You may have forgotten about hundreds of dollars of deductions you could have claimed. The goal becomes about just getting it done. You promise yourself that, next year, it will be different.
Well, guess what? It’s next year! To avoid the tax season scramble and to keep your promise to avoid history repeating itself, you’ll need to decide on one of two approaches now before the year is out:
Option #1: Buckle down and DIY
To take on taxes yourself, you’ll need a strategy. Begin by setting aside some time each week to get prepared. Don’t try to do this all at once. Start by getting all of your important files into one location; preferably one folder. If your tax documents only contain one tax slip (W-2, P60, T4 etc.) and minimal deductions, submitting taxes should be simple. Unfortunately, chances are this scenario doesn’t apply to you and there are some added pieces to worry about. Here are some things you’ll probably need:
- bank statements (for all accounts)
- PayPal reports
- all the -useful- receipts
- loan & investment documents
- a copy of any good 2011 tax preparation software
- caffeine (I prefer Diet Dr. Pepper, but you may need something stronger)
- good music (it could be Bluegrass or Death Metal…as long as it helps you focus)
If you track your info (using something like FreshBooks, for instance), then you should prepare for tax time by downloading all the relevant reports (like Profit and Loss and Expense reports) as well.
If you’re not sure what paperwork you need, do a dry run through the tax prep software (such as TurboTax or whatever you use). As it asks you for information, write down a list of things that you’re missing. This is a good way to find out about deductions you haven’t been claiming. These tax programs don’t make you do it all in one pass. Fill in the information you have, and save the return. When something new shows up in the mail, enter it and save again.
Option #2: Trust Someone Else
Hiring an expert to take on some of the business tasks you might not love is something to seriously consider. When you select “someone else,” be as picky as possible about who you choose. By starting early you’ve got time to screen tax preparers, a step you can’t afford to omit. By mid-April, everyone and their dog has an ad on Kijiji extolling their virtues. They will promise to maximize the returns for you and all your extended family for $19.95. Instead, ask your friends and family who they use. Ask people in your social networks for referrals. Heck, you could even read posts on invoicing software blogs, and ask the authors of said posts for advice.
Even when you find someone who you can trust, you’ll still have to get all the paperwork in order. Well, not in order per se but at least in one pile. Then, all you need to do is drop it off with someone else and let them handle it.
Overall, whichever path you choose just be sure to choose one. If you start early, the only bottleneck will be how fast other people mail you your slips and receipts. So, by the end of February, you should be ready to file. Aside from the obvious stress reduction of filing early, you’ll probably get your return back faster too. There aren’t nearly as many people filing in February, so the turnaround is usually very fast. You’ll have your return in the bank before your friends realize it’s time to panic. You’ll save yourself a big headache in April, and maybe some money too.
Eric Matthews is the author of thatbookkeeper.com, a blog dedicated to helping small businesses get the most out of their resources, with a focus on Bookkeeping.