How to Make Next Tax Season Less Painful
April 15th is behind you. You filed your business taxes. It sucked... but you got through it.
Go ahead: Big exhale.
Now let's make sure you won't have to go through the same chaos, stress, and anxiety when tax season rolls around next year. Instead of playing the "out of sight, out of mind" game that made this year so difficult, take the time now so you won't have to go through the same chaos, stress, and anxiety when tax season rolls around again next year.
The key, according to Jim Secord, CEO of Kashoo, a Vancouver-based online accounting software firm (they also make a very slick iPad accounting app), is to embrace a few good accounting habits--starting now.
Here are Jim's tips:
Stay Current With Your Record Keeping
The first rule of sound accounting is, "Do not procrastinate." The second rule is, "DO NOT PROCRASTINATE."
If you take care of record keeping on a regular basis next year's tax season will be much easier. Unfortunately that's a practice small business owners tend to ignore; you put off record keeping because it's not deadline-sensitive.
One of the simplest ways to stay current is to set a weekly or monthly reminder in your calendar. Set it so that it has multiple (read: annoying) notifications like a pop-up, an email, and a text.
And when you're reminded... do it.
Analyze Variations in Your Current and Previous Returns
What was different this year? Do you normally get a refund, but this time didn't? Can you normally claim certain deductions but this time could not?
What about compared to three years ago? Five years ago?
Compare your returns and you may discover something you can do differently to improve not just your tax situation but also your business.
Know Where Your Cash Comes From
This may come as a surprise, but a lot of small business owners struggle to understand their cash flow.
Post-Tax Day is a perfect time to run a cash flow report since you've just spent some quality time with your finances. A cash flow report can help you understand where your cash comes from, where it goes, and how you can improve the flow.
Get your Accounting in the Cloud
When you've got a box of receipts here, a bunch of invoices there, stuff saved to your hard drive, stuff on your phone's photo stream, some data on a spreadsheet, there's no way you'll be organized. And since organization is the key to a successful tax filing, cloud accounting software can help you get everything centralized.
Start now, because if you're like most businesses you're only just starting Q2. That means there's far less data to lob up onto some simple cloud accounting software than in February 2014 when you have 12 months worth of data to upload.
Perform a Bank Reconciliation Every Month
At the end of every month you get a statement from your bank.
If you still prefer a paper statement, use this tangible delivery as a reminder to do your bank reconciliation. Right then and there. No excuses. It'll take 15 minutes.
If you get a digital statement, chances are you are notified by email: Use that email as a reminder to do your bank reconciliation.
It's much easier to do bank reconciliation when the transactions are fresh in your mind than it is when you try to reach back into multiple months of memory (or lack thereof.)