By Mike Jesowshek, Special AFS Contributor
Tax season is over and you may be thinking, “Great! I don’t have to worry about that until next year.” If that is your mindset I want you to step back a month or two and think about the stress and anxiety you were facing this past tax season. Also don't forget to read my 3 tax tips. You may have been scrambling to get your books completed and then scrambling to gather all of your necessary tax documents and then scrambling to get your taxes filed. That’s a lot of scrambling and it is all unnecessary!
Finances and taxes are and always will be stressful, however there are things you can start doing now to avoid that. I am going to outline changes you can make inside of your business now to take control of your business books and tax situation.
Setup a Bookkeeping System
If you are thinking to yourself, “what is bookkeeping” let's start with that. Bookkeeping is the recording all of your business activity and categorizing it to produce both an income statement and balance sheet. Fortunately, there is software out there that makes this entire process much easier.
We recommend a software called Xero to all of our clients. Within Xero you are able to connect your bank account and credit card directly to the software so that all transactions download into it. Once the transactions are downloaded into Xero you are able to categorize them into their respective categories which will produce both an income statement and balance sheet for your business. Not only does this make tax season painless but it provides you insights on your business throughout the year which can help you spot cost savings.
Running a business means you have documents and receipts stacked up in every corner you can imagine. Take the time now to get all of those documents and receipts in a safe place. Take a picture of them or scan them and put them in a digital filing cabinet that will make finding them down the road easy.
Complete Your Bookkeeping Monthly
At our firm we do bookkeeping for all clients on a monthly basis, at the very least. This ensures that you do not get too far behind. The last thing you want to do is categorize thousands of transactions at one time, especially when it is a task you may not be familiar with. Avoid this by staying on top of it monthly and that bookkeeping task won’t seem so cumbersome.
By doing bookkeeping on a regular basis it also allows you to produce comparative reports. You can start to actually take the data and make business decisions from it. You can compare it to prior months to see if there are cost savings available. You can compare it to prior years or seasons to see if a certain marketing campaign paid off. This is valuable information that every business owner should be analyzing.
Ensure Your Entity is in Good Standing
Whatever state you may be organized in, there is likely an annual filing requirement. Be sure to put this on your calendar each year so you can renew and file any necessary documents with the state to ensure your business stays in good standing. The last thing you want is to get a notice in the mail with a fat fee simply because you avoided a simple state renewal. This may also be important to ensure you stay protected by the liability your entity may provide. Having an expired entity in the middle of a legal issues is the last thing you want!
Keep Documents Organized
Running a business means you have documents and receipts stacked up in every corner you can imagine. Take the time now to get all of those documents and receipts in a safe place. Take a picture of them or scan them and put them in a digital filing cabinet that will make finding them down the road easy.
Once you are all caught up with the items up to this point, put a recurring task on your calendar each week to spend a few minutes uploading everything that came in that week. This will keep you organized should you need anything in the future and give you piece of mind knowing everything is in a safe, easy to find place.
File Estimated Taxes
Now that you are doing bookkeeping on a regular business you know exactly what your profit is at any point in time. This makes paying estimated taxes a breeze. You can take your profit and estimate what the tax liability is and get a payment in the mail for both the IRS and State. No more waiting until April 15th to see how much money you owe, now you can know throughout the year and you can split those payments up into smaller amounts instead of one big lump sum. Estimated tax payments are due on the following schedule:
- Quarter 1 Estimate – Due April
- Quarter 2 Estimate – Due June
- Quarter 3 Estimate – Due September
- Quarter 4 Estimate – Due January
Conclusion
In conclusion, gathering everything and doing your bookkeeping onetime throughout the year is not only stressful but it is actually hurting your business. Take a deep breath after tax season and make a promise to yourself to be more organized this year. Regularly schedule time on your calendar to complete bookkeeping, file necessary entity renewals, and upload important documents and receipts. While you are doing that, do not forget to make regular estimated tax payments. By doing this you will feel a rock lift off your shoulders and you will be in a much better position next tax season and most importantly able to make necessary business decisions with the accurate and up to date information you now have available. Cheers to stress free accounting and taxes!
Mike Jesowshek, CPA is the founder of the accounting firm JETRO and Associates. He has a strong passion for both fitness professionals and technology. He helps provide a digital accounting, bookkeeping, and tax solution for studio and gym owners who are looking to take it to the next level by utilizing modern, cutting edge technology.
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