Navigating Tax Season: Tips for Growing Businesses
- AALIGN Accounting
- Oct 15, 2024
- 5 min read
Updated: Oct 28, 2024
Tax season is one of the most critical times for startups and small businesses — even if they outsource their virtual accounting needs. With proper guidance, planning, and execution, organizations will have no problem meeting compliance, optimizing tax deductions, and redirecting their focus toward other high-priority tasks.
The Importance of Early Tax Preparation
The best way to create a smooth tax season is to begin preparations early and maintain accounting procedures continuously. Remember: Financial documents that are properly organized ahead of time are easier to work with for deductions and credits. Experienced accountants use virtual accounting tools and software that automate certain functions and make it easy to reduce human errors ahead of time.
Understanding Key Tax Deadlines and Forms
Staying aware of important tax deadlines is essential for small businesses to avoid penalties and meet compliance. Here are some key tax deadlines to remember:
January 31: The filing deadline for employers to send Internal Revenue Service (IRS) Form W-2 to employees is January 31. This is a critical deadline for employers as they must file this form to report employee wages and taxes withheld. Timely filing ensures employees can accurately complete their tax returns.
March 15: For S corporations, March 15 is the deadline for filing the IRS Form 1120-S, which reports income, gains, losses, deductions, and credits. This is also when S corporations must distribute Schedule K-1 forms to shareholders, detailing their share of the company’s income, deductions, and credits.
April 15: Often referred to as Tax Day, April 15 is the deadline for individuals to file their federal tax returns using Form 1040 and submit most state tax returns. Filing on time is essential to avoid late fees and interest charges on any taxes owed.
June 15: The deadline for businesses to file an extension and pay applicable estimated taxes is June 15. Businesses requiring additional time to organize their finances may file an extension by this date, however, they must pay any owed taxes by the original deadline.
Gathering Necessary Tax Documentation
Professional accountants create a smooth tax season with secure tools and resources to organize and submit these documents. To ensure you have the right documentation handy, here are some of the common documentation required:
Income Statements: Income statements should include all sources of revenue, such as sales invoices and any earnings generated throughout the fiscal year. Keeping these records complete and accurate is important because they form the basis for calculating a business’s taxable income.
Expense Receipts: Both digital and physical copies of receipts are good to have on hand for expenses incurred by the business. Expenses generally include utilities, office supplies, travel, and marketing costs. Detailed records help maximize allowable deductions and ensure compliance is met during an audit.
Payroll Records: Proper upkeep of comprehensive payroll records is critical, as they cover employee wages, bonuses, employee benefits, and any taxes withheld. Additionally, records of contractors and freelancers paid throughout the year should be included for accurate tax reporting.
Previous Tax Returns: Prior company tax filings provide valuable insights for future filings, as they show trends in income and deductions that can inform current return preparations and assist in forecasting. Comparing past and current financial performance helps identify areas for potential improvement while ensuring accurate reporting.
Avoiding Common Tax Mistakes
According to the IRS, it completed 582,944 tax return audits in 2023. Several common tax mistakes can hinder efficient tax filing, and avoiding these mistakes can save time and money while ensuring compliance with tax laws and regulations.
Some of these common tax filing mistakes include:
Misclassification of Employees: It is important to properly categorize when someone you have hired is an employee or an independent contractor.
Missing Deductions: Don’t overlook eligible deductions and pay more taxes than necessary. Businesses should keep track of deductible expenses like office supplies, travel costs, and equipment depreciation to maximize savings.
Incorrect Deductions: Not all expenses are deductible, and claiming incorrect ones could trigger audits. The help of an accounting expert will protect you from these types of errors and mishaps.
Inaccurate Record Keeping: Maintaining accurate records is essential for filing precise tax returns. Using cloud-based storage solutions ensures data is regularly updated and accessible for review, minimizing discrepancies and supporting a smoother tax preparation process.
Late Filings: Submitting tax returns past their deadlines may incur expensive penalties and interest. Setting up reminders and working with a professional accountant to meet these deadlines can prevent such financial setbacks.
Incorrect Tax Identification Numbers: Using the wrong tax identification number can delay filings and result in communication from tax authorities. Double-check these numbers to avoid unnecessary complications.
Digital Accounting Tools and Platforms for Tax Season
Digital accounting platforms like QuickBooks and Xero help maintain order and proper budgeting via the cloud, especially during tax season. These digital platforms grant virtual accountants prompt access to accurate data.
Virtual accountants are critical in tax planning for growing businesses. They typically use expense-tracking software like Freshbooks and cloud storage services like Google Drive or Dropbox for document storage and sharing.
Leveraging Remote Accounting Services
Remote accounting services with virtual setups benefit startups, growing businesses, and successful corporations. Leveraging technology to avoid common pitfalls and serving as online tax advisors, virtual accountants offer guidance on tax planning and maintaining compliance to ensure organizations meet their obligations and optimize their financial strategies for future growth.
The benefits of leveraging remote accounting services include:
24/7 Accessibility: Online accountants provide flexibility and convenience across different time zones with immediate access to financial data reports for timely decision-making.
Secure Data Handling: Virtual accounting firms employ secure platforms with advanced encryption technologies to protect sensitive company information. They also regularly update cybersecurity protocols to safeguard against potential threats.
Tailored Expertise: Outsourced accounting firms provide specialized services for industry-specific needs with access to specialists in niche markets to tackle specific financial concerns more effectively. Remote professional accountants also complete ongoing training and development to keep up with new industry standards and practices.
Structuring of Business Operations: Remote accountants advise on which business structure is most beneficial from a tax standpoint. They offer guidance on setting up systems for efficient payroll management and compliance, with recommendations for optimizing cash flow and inventory management.
Tax Deductions and Credits: Virtual accountants can help companies identify state-specific deductions and tax incentives that help reduce taxable income.
Tax Planning: Freelance accounting professionals calculate estimated taxes and advise on how to avoid underpayment penalties, with detailed projections to account for fluctuating income and expenses. They also assist in setting up automated payments to streamline tax compliance.
Finding the Right Virtual Accountant
Selecting a virtual accountant who suits your business needs requires research and several key considerations beyond reviewing their experience. Start by evaluating their familiarity with your specific industry, as this ensures they understand the unique financial challenges and regulations you might face.
Assess the candidate’s technological capabilities, particularly their proficiency with cloud-based accounting software and tools that streamline collaboration and data sharing. It’s also important to gauge their communication skills and availability — ensuring they can respond promptly to inquiries and adapt to your preferred communication methods. Don’t overlook the value of client testimonials and case studies, which provide insight into their reliability and effectiveness.
Networking with local business groups or attending finance-related events can also offer personal recommendations that distinguish top accounting candidates. Overall, a comprehensive approach to selection will help secure a virtual accountant who can contribute significantly to your business’s financial health.
