How to Begin Preparing for Tax Season: Steps and Deductions to Consider
Filing business taxes doesn’t have to be a daunting process. It’s helpful to keep up with bookkeeping and record keeping throughout the year to stay organized and avoid scrambling when it’s tax season. Begin preparing for tax season now and be less frustrated and more efficient by having all the materials at your fingertips.
By being prepared, you’ll be ready to file taxes as early as possible – the IRS usually starts accepting returns around mid-January, this year February. The earlier you file, the sooner you’ll get your refund.
Here are 4 steps explaining how to begin preparing for tax season:
- Get Organized: By getting organized early, you give yourself plenty of time to complete filing taxes properly, saving time, anxiety, and in many instances, money. Store receipts in one place and keep them sorted to easily find what is needed. Gather bank statements; many tax preparers want to review bank statements before preparing tax returns to ensure the balance sheet balances match the bank balances. This helps make sure all expenses and revenues have been recognized in the bookkeeping.
- Track Charitable Donations: Charitable donations are tax-deductible so keep track of monthly or one-off donations, so these expenses can be deducted from your taxes.
- Personal vs Business Expenses: If you’ve accidentally used personal funds for business expenses, these are still tax deductions. Review all personal accounts for the previous year and flag any business expenses. Simply write yourself a reimbursement check from your business bank account to capture the expenses. Conversely, if you have used a business credit card for a personal expense, these personal expenses need to be properly recorded so they aren’t deducted as business expenses.
- Properly issue 1099s: The IRS requires you to issue Form 1099 by the end of January to any non-corporate service provider to whom you pay more than $600 in a given year. However, if you pay for these services using a credit or debit card, or if you use a payment service such as PayPal or Stripe, you must exclude those payments from your 1099 reporting. The payment processor is responsible for reporting those payments on Form 1099-K.