The 3 Stages Of Filing Small Business Taxes

For accountants, this is the time of year for reflection. We’re passed all of the filing deadlines and we have about 6-8 weeks until we start to hound our clients about W9 Forms and 1099s. I remind each of my clients about 10x per year about W9 forms and I’m hoping for an easy season. I also do this because it fits neatly into Stage 1 of 3 when it comes to filing small business tax returns.

You see filing correct small business tax returns is a lot more than entering in data from a spreadsheet or accounting software and into advanced tax software. Small business owners and tax accountants both must put in hour after hour of organization just to get the data the way they want before it even goes near the tax software (the first stage). Once the data is nice and neat then we can start entering in the data and filing the return (stage two). Finally, organization plays a big role in stage 3 as tax accountants have to be prepared to back up their determinations when representing clients before the IRS.

To make it nice and neat, the 3 Stages of Filing Small Business Taxes are:

      Stage One: Getting your bookkeeping in order and maintaining it monthly
      Stage Two: Preparing your tax return correctly
      Stage Three: Representing you in front of the IRS in case of an audit

In fairness, each of these 3 stages can and should be broken down into 100 smaller steps. What makes working on each stage easier is if you keep all 3 stages in mind each stage of the way.

For example:

You went to lunch with a potential new client and you picked up the $100 meal tab at the hot new restaurant in town (it was delicious by the way). Do you know how this effects all 3 stages?

Stage One: This expense should obviously go into a Meals and Entertainment Expense (50%) category. I like to put 50% at the end of the expense for my own benefit or for the future tax accountant so there is no confusion (Not all meals go into the 50% category… do you know which don’t?). Make sure you write the name of the person you had lunch with, their company and what you discussed at the meal.

Stage 2: The expense goes into the Meals and Entertainment Expense (50%) on the corresponding Schedule C, 1065 or 1120/1120s. Stage 3: If you get audited you have sufficient documentation to back up the expense. Keep this receipt with your other tax documents for the year.

What are some other ways you can make your life easier come tax time? Here are just a few:

  • Reconcile your bank and credit cards on a monthly basis. Hire a professional bookkeeper to help out and you’ll save prep time from your (much more expensive) tax preparer. Additionally, some tax preparers provide discounted monthly bookkeeping fees if they also prepare the tax return. Do I? Yes!
  • Keep your records organized throughout the year. If you have a lot of receipts, keep them in separate folders organized by month or by statement. Use staples over paper clips as they will help you maintain all of your records without potential slip-ups.
  • Write the date paid, date mailed and check number to any and all invoices. This allows you to keep track of who hasn’t been paid and you’ll know for easy reference if you’ve mailed that pesky vendor who keeps calling about whether you’ve mailed his check or not.

These all seem like pretty simple and easy to do tasks and in fact they are. But so many small business owners just keep their receipts in a shoe box, grocery bag or, worst of all, nowhere (aka everywhere). Use your smartphone and the latest technology to your advantage–take a photo and upload quickly and easily to Google Drive or Dropbox (they’re free!). Organize by month and rename the receipt to the day it was taken (vendor name would be nice too but I’ll take what I can get) and you’re good to go.

And look, if you ever need any help working on any of the organization above, please contact us to set up a free consultation. We can help you organize your office so that you’re spending less time dealing with receipts and more time making money (or having fun, whichever is your goal).