Preparing for Tax Season: What Every Business Should Do Now

Tax season is forthcoming, and whether you're running a small business or managing a large corporation, now is the time to get your finances in order. Proactive planning can save you money, reduce stress, and help you avoid potential pitfalls. If you’re wondering where to start, here’s a step-by-step guide on how businesses can prepare for tax season.

1. Organize Your Financial Records

Before you even think about filing your taxes, you need to have your financial records organized. This may seem like an obvious first step, but you’d be surprised how many businesses leave this until the last minute. The first thing you should do is review your financial statements—profit and loss statements, balance sheets, and income statements.

Ensure all receipts, invoices, and bank statements are accounted for and categorized correctly. If you're using accounting software, this can make your life much easier, but even if you’re relying on spreadsheets or physical paperwork, having everything sorted ahead of time can streamline the filing process.

2. Review Business Deductions

Businesses often miss out on valuable deductions because they aren’t fully aware of all the tax benefits available to them. Some common deductions include:

• Operating Expenses: Rent, utilities, office supplies, and software subscriptions.

• Employee Salaries and Benefits: This includes wages, health insurance, and retirement contributions.

• Depreciation: The gradual loss of value for long-term assets like equipment, vehicles, and buildings.

• Interest on Business Loans: If you took out a loan, you can often deduct the interest paid during the year.

  
  

Reviewing these deductions now gives you time to plan and ensure you’re not overlooking anything that could save your business money. A tax professional can also help you identify lesser-known deductions.

3. Get Your Payroll in Order

For businesses with employees, payroll can be a significant component of tax preparation. Ensure that your payroll records are accurate, including any taxes withheld, benefits, and bonuses. If you’ve made any payroll adjustments throughout the year (such as changes in employee pay rates), confirm that these are correctly reflected in your records.

Don’t forget to file your quarterly payroll taxes and submit any year-end reports, such as W-2 and 1099 forms. Mistakes or delays in these areas can lead to penalties and fines, so it’s crucial to double-check everything in advance.

4. Understand Tax Law Changes

Tax laws can change from year to year, and staying updated is vital for ensuring you don’t miss out on new tax benefits or accidentally break any new rules. For example, the Tax Cuts and Jobs Act of 2017 introduced several key changes, and there have been ongoing updates to things like the standard deduction, corporate tax rates, and credits for research and development.

Research the latest tax law changes or, even better, consult with a tax advisor to see how they could affect your business. Understanding any relevant tax reforms will help you avoid surprises come tax time.

5. Set Aside Funds for Your Tax Bill

Depending on your business’s structure (sole proprietorship, partnership, LLC, or corporation), you may need to make estimated tax payments throughout the year. If you’ve neglected to set aside money for taxes during the year, now is the time to start saving. The last thing you want is to be scrambling for funds when the tax bill arrives.

As a best practice, set aside a portion of your income regularly throughout the year to cover taxes, so when the season rolls around, you’re not left with a hefty balance due. It’s a good idea to work with a financial advisor to project your tax liability for the year and set up an appropriate savings plan.

6. Consider Tax-Advantaged Accounts

One strategy that many businesses overlook is contributing to tax-advantaged accounts. Options like retirement accounts (401(k), SEP IRA, or SIMPLE IRA) or health savings accounts (HSAs) can reduce your taxable income while helping you plan for the future. Contributions to these accounts can be deducted from your income, potentially lowering your overall tax burden.

Now is the time to evaluate whether these accounts would be beneficial for your business and employees. Setting up such accounts can have long-term advantages beyond just tax season.

7. Work with a Professional

While it’s possible to handle tax preparation on your own, working with a professional can save you time, money, and hassle. Tax professionals, including CPAs and enrolled agents, have specialized knowledge that can help you navigate complex tax laws and ensure you’re compliant.

They can also offer strategic advice on how to reduce your tax liability, maximize deductions, and make better financial decisions for your business. It’s especially important to work with someone if your business is growing or you have a more complex tax situation, such as multiple revenue streams or international operations.

8. Keep an Eye on Deadlines

The clock is ticking, and missing deadlines can result in penalties. Familiarize yourself with the key dates for tax filing:

• March 15: Deadline for S corporations and partnerships to file their tax returns (or request an extension).

• April 15: The general deadline for individual tax returns, as well as C corporations.

• Quarterly Estimated Tax Deadlines: These usually fall in April, June, September, and January.

  
  

Create a calendar to track these deadlines, and make sure your tax return is filed on time. Filing early can help you avoid last-minute stress and may even allow you to expedite any refunds.

9. Review Your Business Structure

Tax season is also a good time to evaluate whether your current business structure is still the best fit for your financial goals. For example, some business owners switch from a sole proprietorship to an LLC or elect S corporation status for tax purposes.

Each business structure has different tax implications, and a tax professional can guide you in deciding whether a change could benefit your tax situation. Even small adjustments can lead to big savings over time.

Conclusion

Tax season may seem like a daunting time, but with a little preparation, you can make the process much smoother. Organizing your financial records, understanding your deductions, and working with a tax professional are just a few of the steps you can take to set your business up for success. The earlier you begin preparing, the less stressful tax season will be—and the more money you could save in the long run.

By taking proactive steps today, you’re setting yourself up for a tax season that’s not only easier to manage but potentially more profitable for your business in the years to come. So, don’t wait—start preparing for tax season now!