Posted: April 02, 2009
Do yourself a favor: Get started on next year’s taxes now
Planning ahead is one of the most important things you can do to save moneyBy Rick LaFave
Is your tax return finished yet? Chances are good that you recently sent your forms to the IRS, and you’re excited to not think much about taxes until this time next year. And if you haven’t filed yet, you’re probably scrambling right now and promising to not do this to yourself next year!
When you finish this year’s tax return for your small business, I’d like to encourage you to do yourself a favor: Spend a small amount of time thinking about next year’s taxes. In other words, don’t fall into that trap of being relieved that they’re finished, ignoring them for 11 months, and going through the same process in 2010.
Any tax professional will tell you that planning ahead is one of the most important things you can do. And if you force yourself to start a strategic tax planning process today, chances are good next year’s tax season will be much easier for you – and more importantly, you might save your business some money in the process.
Here are a few things you should think about as you get started:
1. Make sure you have appropriate internal controls in place
This piece of advice obviously extends beyond taxes and into the operational structure of your business. Who reconciles the sales receipts at night? Is this the same person who works the register, who also is in charge of making nightly deposits? Honesty issues aside, putting in place a logical system of internal controls can prevent mistakes with your finances – which can save you big headaches trying to sort things out come tax time.
2. Check to see if your bookkeeping is being done right
Many small businesses use do-it-yourself software to balance their books and keep track of their finances. These programs can be terrific, particularly in the way their reports can aid in tracking and inform management decisions. But unfortunately, too many small business owners don’t know how to use these programs properly. And if you start off on the wrong foot – entering items in the wrong place, for instance – it can be tremendously difficult to sort out.
We usually recommend that small business owners begin this process by getting a short training from a professional. From there, checking in and reviewing the books once per month makes sense, to ensure any mistakes get corrected. Once you get the hang of it and you’re confident that you’re not making errors that will snowball into major headaches, check in with your professional once per quarter. It almost always pays off in the end. And don’t forget: You should perform a reconciliation with your bank statement each month.
3. Sit down with a professional
Once you have your house in order, a tax professional will be able to help you take the next step. Now that you’re confident in the accuracy of your bookkeeping and the integrity of your internal controls, you can discuss your company’s financial goals, and how a tax strategy can support them. What are your upcoming capital expenditures – not just this year, but in the next few years? Do you have debt issues that need to be addressed from a tax perspective? Are you bringing on employees, and is your payroll function set up to make these accommodations?
These are just a few of the questions you can discuss with a tax professional. Just like estate planning for individuals, each company’s situation is different, as are their goals. A professional will help you tailor a strategy that addresses your unique needs.
While you’re at it, you should commit yourself to doing a better job of record keeping in 2009 than you did in 2008. You remember what a headache it was to sort through all those credit card bills to put together your return, right? Resolve to make that process easier next year.
While the specifics usually depend on what type of company you have, here are some examples we see regularly of records in need of better organization:
• Copies of checks. You should make a copy of every check you deposit. It’s a simple thing to do, and there’s no better record if you have a dispute down the road.
• Travel, meals and entertainment. You probably know the 50 percent rule in writing off meal and entertainment expenses, but do you keep an itemized log? If you get audited, you’re going to need to show detailed records of these expenses, and you’ll need to justify why they were business-related. The best way is to keep an updated log.
• Payroll: While you don’t want to slip up in any areas of accounting, you really don’t want to make mistakes in your payroll. These types of errors, including missing deadlines, could mean significant penalties.
Rick LaFave is a principal with H&R Block Tax & Business Services (formerly Vantive Partners) in Centennial. With 11 offices in the Denver area, H&R Block Tax & Business Services specializes in providing clients with a proactive approach to individual and business tax strategies. Visit www.HRBTaxandBusiness.com for more information.