We may be in the middle of wrapping up the year, but the most important season is just around the corner for businesses of all sizes. That’s right, tax season is on our heels. While it’s commonly a time of the year that no one looks forward to, taxes are inevitable. So, your business may as well be prepared.
If you’re part of a startup or are a smaller business that doesn’t have a full-time accounting team on your side, getting ready for tax season can be a daunting task. Here are some of our key tips for helping you avoid an audit.
Work With a Fractional Accountant for Business Tax Prep
If your business doesn’t have a full-time accountant in its entourage, it risks making some egregious tax mistakes this season. Underestimating, underreporting, filing the wrong documents, and confusing business and personal expenses in taxes are all mistakes you want to avoid.
However, hiring an accountant isn’t always an option. So, looking into fractional accountants could be your brand’s move to ensure accurate taxes this year. Fractional accounting is an excellent option because it comes with all of the expertise you’d expect from a full-time accounting team, yet you only pay for services through a contract.
Once tax season is over, if you still need accounting services, extend your contract. However, contracts can be terminated if you feel like you can hold off on these services after taxes. The choice is yours!
Double-Check the Income You Report to the IRS
If the income you report to the IRS matches up with the income you’re actually claiming and receiving, your business will experience a much smoother tax season.
Work with your accountant to review your books and income. Remember, the IRS gets every 1099-MISC form you do, so ensuring all of the numbers you report line up is critical. Failing to do so sets off alarms with the IRS and could result in fines, audits, or worse!
Reconcile Bank Accounts
While we’re on the topic of double-checking that numbers match up, now is the time to reconcile your bank account and ensure your records match what’s sitting in the bank. This is a critical step in bookkeeping and can help you streamline the tax process, especially if you’re paying for fractional bookkeeping services.
Don’t Forget the Difference Between Net and Gross Income
The taxes a business owes are based on its net and gross income. Net income is the total income earned by the business minus any expenses or losses. Gross income is the total income earned by the business before any deductions are made.
The net income is what is used to calculate the business’s taxes. The amount of tax owed will depend on the business’s net income and the tax rate that applies to that income. Gross income is not used to calculate taxes, but it is important for determining how much of the net income is taxable.
For example, if a business has a net income of $100,000 and a gross income of $200,000, then the net income would be taxed at the applicable rate. However, if the gross income was only $50,000, then only $25,000 of the net income would be taxable. Businesses must carefully track both their net and gross incomes to accurately calculate their taxes.
Keep Business and Personal Expenses Separate
When tax season rolls around, it’s important to make sure that you keep your business and personal accounts separate. This will help to ensure that you can accurately track your expenses and deductions. Additionally, it will help prevent any potential confusion or mix-ups when preparing your taxes.
There are several ways to keep your business and personal accounts separate. One option is to open a separate bank account for your business. This will allow you to easily track your income and expenses. Another option is to use accounting software to track your expenses and income. This can be a great option if you don’t want to open a separate bank account. Whichever option you choose, ensure that you stay organized and consistent to accurately prepare your taxes.
Ready for Tax Season? OSMEAC Solutions can Get You There!
If tax season has you feeling unnecessary financial pressure as a business owner, reach out to the financial experts of OSMEAC Solutions for help. Our tax specialists can give you the guidance you need to ensure accurate income reports that successfully usher your business into the new year.