Preparing business taxes is nobody’s idea of fun, and it’s even more complicated this year, thanks to new tax laws and deduction changes announced in 2018 and 2019. That means that even if your business tax preparation process was a well-oiled machine in years past, it’s time for a reboot. Here are some tips to make things easier this year, and every year from now on.
Know What Has Changed
The Tax Cuts and Jobs Act, which took effect in the 2018 tax year, changed virtually everything and still has an impact on taxes today. In many cases, small businesses may get a significant tax break, especially those structured as limited liability companies, S corporations, sole proprietorships and partnerships. Even larger C corporations may enjoy a lower tax rate. But along with the benefits, there are other changes that will affect small and midsized businesses. For example, there are now much stricter limits on deducting expenses for meals and entertainment.
Other changes to be aware of, that will also affect your 2019 taxes, include:
- a new family leave tax credit
- a business deduction on interest expenses that is now limited for larger business
- business entertainment expenses can’t be deducted as a business expense
- deducting costs of employees commuting to work is no longer allowed
While the new rules were designed to simplify the tax code, all of these changes can actually make business tax preparation more complicated. The U.S. Small Business Administration‘s guide on understanding the revised tax code may help.
Gather the Right Information
Make sure you’ve assembled all of the necessary tax documents before attempting either to prepare your tax returns in-house or to give them to your accountant. These include:
- Last year’s tax return
- Interest statements from all accounts, including investments
- Sales records
- Insurance premiums
- Contractor payments
- Taxes you paid during the previous year
- Financial statements, including income statements, balance sheets, profit and loss statements, and cash flow statements
- Payroll information
- Business expenses, which the IRS identifies as everything from advertising and travel expenses to rent, utilities, shipping, office supplies, etc.
- Details on any assets you have acquired or sold during the past year
- Mileage expenses
Organize the Information
Often, it’s a frustrating scramble to gather everything necessary to prepare your business taxes. It’s far more productive and less frustrating to keep records organized throughout the year. With a consistent records management system, you’ll know exactly where your records are and how to access them quickly. That way, filing your taxes won’t take much time at all.
Prepare for Next Year
It may seem counterintuitive, but the best time to start preparing for next year’s taxes is immediately after submitting this year’s return. In fact, tax preparation should be a year-round activity. With an automated records management system and secure document storage, you can securely store and manage important tax documents as soon as they are created. So when it’s time to gather documents for next year’s taxes, it will be much easier to find what you need.
Securely Dispose of Old Tax Records and Returns
Depending on the type of documents, the IRS may require you to retain them for anywhere from three to seven years. To be on the safe side, it’s probably a good idea to keep everything for seven years. But after that time, it’s best to securely destroy those records. Not only does doing so save valuable space and money, but it also reduces the chances of sensitive information getting into the wrong hands. One of the best ways to destroy these records promptly is to securely shred documents older than seven years.
Following these tips will streamline your tax gathering and preparation process. While business tax preparation is a fact of life, it doesn’t have to be stressful or time-consuming.