The life of a small business owner is filled with many memorable moments.
From hiring the first employee to crossing the $1 million in revenue milestone, each day is likely to bring surprises, accomplishments and challenges. But the one day that fills almost all small business owners with dread is April 18 - Tax Day.
Preparing taxes is an unavoidable part of running a small business, but an important one. Besides keeping up with all state and federal regulations, the process of filing taxes can help give business owners the full financial picture of their business' health. With that information and other insights gained by an in-depth review, business owners can plan how to capitalize on positive developments in their company and industry, and take steps to minimize money-losing activities.
So what should small business owners be thinking about when filing their taxes? Here are three questions to consider before getting started.
1. Where are Your Financial Records?
The first step in beginning your taxes is locating all of your business' financial records. Financial records could be anywhere; on paper, in numerous cloud-based apps and in digital records from multiple financial institutions. To help with this process, many small businesses employ a bookkeeper -- someone who can record your day-to-day financial transactions, create invoices and enter receivables and payables. Some small businesses may also employ an accountant, who can handle everything a bookkeeper can do plus additional tasks, like setting up and managing financial reporting systems, generating financial statements, managing cash flow, helping secure loans and leases, and providing financial analysis and planning.
Once you've located your financial records, it's a good idea to set up a meeting with your financial team to discuss end-of-year results and potential tax implications. Make sure to separate any tax documents from other financial documents so that there isn't any confusion, and make multiple copies of everything.
2. Who's Doing Your Taxes?
Small business owners are naturally very self-motivated and want to be hands-on in every aspect of their business. They may also be reluctant to delegate tasks to other employees, believing that if they want something done right then they need to do it themselves. This may work for a small start-up, but as a business grows, it simply becomes impossible for one person to do everything. So depending on how large your business is you have two options when it comes to filing your taxes: do it yourself or hire an expert.
For the DIY camp, there are plenty of resources available to help you figure out exactly what forms are needed and how to fill them out. Besides the IRS website, which contains a wealth of information, there are several excellent software applications and online tools available. The advantage of these programs and services -- some of which include, TurboTax, QuickBooks, TaxACT, H&R Block -- is that they are constantly updated with the latest tax policies so that you don't have to comb through thousands of pages of tax code to figure out what's new each year. They're also largely automated, reducing the chance of a manual entry error.
As for those small business owners who would feel more comfortable hiring an expert to do their business taxes, there are plenty of options to consider as well. For instance, do you want your taxes done in-house or do you want to outsource the work to a qualified tax professional, such as a CPA, or a professional tax service? The answer will likely depend on the size and complexity of your business. Smaller businesses may be content with an accountant or CPA who is intimately familiar with the finances of the business and knows where to find specific records or forms. Larger businesses with complex financial records may prefer a seasoned tax professional, or professionals, whose entire livelihood depends on keeping up with the changing tax codes. These professionals can help you find relevant deductions and credits and also provide advice on how to maximize tax savings.
3. What do Your Tax Returns Say About Your Business?
Many small business owners might be tempted to store their tax returns in a far-off filing cabinet and not think about taxes again until the following year. But tax returns often hold valuable information that may be critical to running a successful business. For example, if your business owed more in taxes than you anticipated, then that suggests you're either not properly utilizing potential deductions or you're not reinvesting enough of your profits.
Although it's impossible to exactly predict how much a small business will owe in taxes when planning out the fiscal year, you (or your friendly neighborhood tax planner) should still be able to come up with a reasonable estimate. This estimate could factor heavily into how much you spend on other parts of your business, such as hiring, marketing or expansion.
So use this Tax Day as an opportunity to make your business more efficient and financially stable. You'll thank yourself next April 18.
This is not investment, tax, or legal advice. Should you have questions, please consult your own attorney, tax accountant, or other appropriate expert having expertise in the area of your question or before making important decisions in these areas.
James Mendelsohn is Chief Marketing Officer at CAN Capital, Inc., the largest and most-experienced small business finance specialist providing access to capital.