As 2015 draws to a close, getting taxes done is starting to enter the minds of small business owners across the world. In the United States, almost 95% of employers, or 28 million businesses, can be qualified as “small businesses”(Forbes) and the trends that small businesses are going through tend to serve as a good indicator for what the stability of the economy will be as a whole.
For such a large and crucial part of the American economy, small businesses are racked with problems around getting through the tax season. When small businesses are pulling their records together to report annual taxes, mistakes can be common, causing headaches, late nights, and of course money. To avoid these types of situations, it is imperative that small businesses use good bookkeeping record management software.
In an article published recently on timescall.com, tax experts offer tips on how small businesses can avoid many of the year-end mistakes that too many small businesses make. “Unless a small business is using a good accounting software program, and staying up-to-date on their entries, they are likely to be unaware of their tax liability for the year,” said Kim Schifano, owner of KS Bookkeeping & Payroll Services in Longmont. “This is what I see with businesses that wait until the last minute to put their books together. I think there are a lot of small business owners out there that believe they can do their own bookkeeping, and save money in the process,” Schifano added. “I’ve talked to business owners that struggle with their sales tax reports, payroll and associated taxes, but think they are saving money by doing all of this themselves. You didn’t open your business to be a bookkeeper, I did that.”
Allowing the tax experts to help you navigate through dense and complicated tax code, and receive all the exemptions and tax credits that you can, is one of the best ways to avoid IRS trouble and save as much money as possible.
Here are five specific mistakes that are commonly made by small businesses which can be avoided with the proper planning and software:
Mixing Business and Personal Funds
Your small business should have its own separate bank account. Keeping a separate bank account(s) for your small business helps ensure that all commercial transactions will be accounted for and taxed separately from your personal funds.
It is imperative to input every transaction into your accounting and record keeping system. It is difficult and tedious to go back and retroactively input data. If your input records are good, the data your software gives you at the end of the year will be accurate and won’t require any last minute adjusting.
Reading the Fine Print on Credit Agreements
It is crucial for small businesses to thoroughly read and understand all credit agreements they sign before accepting funds. It is far too easy to get into a bad credit situation by signing an agreement that has unfavorable terms which you neglected to read.
Avoiding automated processes and new technologies is another common mistake. For a company of less than 15 employees, accounting can often be done manually, but as the business grows and the number of employees and transactions increases, manual accounting processes becomes increasingly inefficient. Good software will streamline taxes for any organization, but is essential if you are expecting to grow.
Waiting too long
With the right accounting software, small business owners can do a substantial amount of their own bookkeeping, but it is still highly recommended to keep an accounting professional on retainer. “Ideally, you should know your CPA. Engage in the process. You should not just see them once a year,” Williams said. “To show up at the door once a year, is the wrong thing to be doing. You need to be engaged with your CPA.”
Using a tax program like QuickBooks is probably the single most beneficial thing you can do to take the hassle out of taxes, avoid stress, and save money. Once you’ve generated the necessary records though, it becomes necessary to store them, sometimes for years at a time. To facilitate this in the digital age, a document management system is crucial. No matter what brand of tax software you use, a good document management system (or DMS) will integrate and work seamlessly with that software. Whether you use Intuit, Thomson, Drake, or any other tax program, you will find that our DMS works hand in hand with your existing software.
To have one of our experts contact you about getting ready for your taxes, and specifically how document management systems can integrate with your tax software, fill out the form on this page for a 15-minute demo.