Tax for startups can sound overwhelming, but it doesn’t have to be. In addition, before year-end, it’s time to ensure things are organized because what happens now affects you in April. Before your business is ready to file taxes, you should know how this works.
You worked hard this year, and now it’s time to wrap things up and prepare for next year. Where you wind up at the end of the year depends on your current tax situation. Startups are prone to cash flow issues, especially when they must stay on top of the tax laws surrounding their businesses. You must understand what the tax law says and how that pertains to your company.
Your taxes are the best place to start. Remember your taxes when preparing for the holidays, wrapping up the year, or vacationing. Some of the tips below will ensure you get all essential tax deadlines.
Tips for Preparing Your Taxes for Year-End
Don’t Wait Until the Last Minute
If you’re a small business owner, the most important thing you can do is plan. Gather all your tax documents and ensure they’re organized before the last minute. The earlier you plan, the better. Know what you must have to file your taxes, including receipts and records of expenses, such as those for office supplies, travel, entertainment, advertising, etc.
Also, organize and gather all the information required to complete your tax return. If you file your taxes early, you’ll have more time to correct any errors.
Defer or Accelerate Income
Ensure that you defer or accelerate income as necessary. If your business is going through a growth spurt and you don’t want to pay taxes now, waiting income is your best option. Consider accelerating income into the current period if your business is nearing the end of its busy season and income will slow down in the coming months.
Next, work through the best time for you to collect invoices. If it’s earlier than usual, think about how much extra cash flow will help your business—and then ensure all these bills get paid on time.
Take Advantage of Deductions
You can take advantage of several tax deductions when preparing your taxes for year-end. These range from the obvious ones, like charitable donations and mortgage interest, to ones that might not seem obvious at first glance. For example, you can deduct the actual expense or standard mileage rate if you use your car for business. It is an easy deduction if you keep track of all your mileage and have proof of what it costs to run your vehicle.
Deductions are also available for home offices, and the business owner pays health insurance premiums. You can write off the cost of supplies used in your business (although there are limitations on how much). To avoid forgetting these expenses at tax time, keep track of them throughout the year.
Also, do what you can in the remaining weeks to leverage deductions. For example: If you’re self-employed and have spent money on office supplies or equipment, consider deducting these expenses from your tax return. You might also deduct business expenses like:
Keep track of all these expenses throughout the year so you can claim them on your tax return when it comes time to file.
Make an appointment with a tax professional if anything else has to be done before year-end; IRS Tax Extensions are available for those who require more time to file their returns.
Do Your Research
Start by doing your research. Double-check with a tax professional before filing if you’re unsure what you have to report on your return.
Also, ensure that you’re aware of any changes that might affect how you file. It could include higher or lower income limits for certain tax credits or deductions. Differences in how much money you can contribute to a retirement plan each year (such as an IRA). There could be changes in what counts as income for those plans. (For example, if dividends are now considered “qualified” rather than ordinary income).
Review Your Accounting Process
Before year-end, review your accounting process.
- Did you have any issues with finding your records?
- Are your books up-to-date?
- Are you still using inefficient manual processes?
Yes to any of these questions means it’s time to rethink your accounting process for the year ahead.
Consider automating more manual tasks that can take up a substantial amount of time, like data entry and reporting. It will help you decrease errors and save money by reducing manual labor costs.
Talk With an Accountant Who Specializes in Tax for Startups
Before the end of the year, it’s essential to gather a strong understanding of your tax situation. This will help you save more now and in the future.
If you need assistance in any of the areas listed above, look into Founder’s CPA – we file tax returns for startups and can make sure your business is on the right track.
Contact us today to find out how we can help you with your startup taxes.