Tax season is full of anxiety and confusion for small businesses. Nobody wants to spend late nights combing through spreadsheets, reconciling expenses and accounting for their deductions at the last minute. But in early April, this exhausting tax work feels inevitable. It’s no wonder that by April 16, many small business owners are breathing a big sigh of relief: “At last, that’s over. We don’t have to worry about taxes for another year.”
Sound familiar? Okay, take a breath.
But then get back to work.
If you can start early and incorporate tax planning into your overall business strategy, you can minimize tax-season stress, avoid fines and penalties, and maybe even find a few extra deductions. Here are five things you need to do year-round to manage your taxes.
1. Get organized
Creating a good tax strategy starts with investing in good software. Several great tools are available for small and medium-sized businesses, including products like Intuit QuickBooks Online and Xero. Research the pros and cons, understand the pricing options, and learn how they integrate with other systems you may already have in place.
Accounting and bookkeeping software often includes a service to track receipts digitally, so you won’t have to rifle through a shoebox of paper at the end of the year. Take the time to learn how to use this feature, and ensure everyone on the team is tracking their expenses similarly.
Close your book monthly. That means ensuring all your transactions are accounted for, and any discrepancies are reconciled. By setting up a modern back-office infrastructure with cloud-based accounting and bookkeeping software, you can quickly review all your transactions from the previous month. Any missing transactions or accounting errors could spell trouble down the road, so you want to catch them early. You’ll stay ahead of the game if you put a monthly finance check-in on the calendar.
Separate business and personal expenses. If you haven’t done so already, set up a business bank account separate from your own and make sure you use a separate business credit card for any purchases. Although it may be tempting to live off the business’ cash accounts while scaling up when tax time comes, those personal expenses won’t qualify for deductions, and you’ll get headaches. If you take money out to pay yourself a salary, you may even have more taxable income than anticipated.
Related: Your Company Won’t Grow Until You Follow These 4 Keys to Success
2. Research deductions and tax credits
Emerging small businesses often miss out on deductions simply because they don’t have the time to learn about them. However, many business-related costs, such as home office setup, professional fees, rent, office supplies, utilities and travel, can be deducted. Mixed-use expenses, such as business meals, car and auto expenses, and insurance premiums, may also be eligible. Deductions for employee compensation, contractor labor, advertising, and education are also essential to track because they can lower taxable income and foster business growth.
If you do your research early, you may also be able to find tax credits available to your specific industry or state. Be sure to understand what you can write off and what documentation you’ll need to do so. This way, you can create a paper trail for these write-offs throughout the year.
3. Know your tax deadlines
Entrepreneurs need to understand and stay ahead of tax deadlines throughout the year to avoid IRS penalties. These deadlines vary by business type, and they include things like business income taxes, payroll taxes, and W2 filings. Here’s a good breakdown of tax deadlines for 2024.
Related: Must-Know Tips for Navigating Tax Season With a Side Hustle
4. Find a great partner
Consider outsourcing all or some of your finance operations to a trusted accounting partner. A good partner can help you streamline your processes and replace back-office functions, freeing up time and money for you to grow your business. The right partner can manage your bookkeeping, standardize your reporting, optimize your business processes, and provide dedicated support throughout the year. They can help you understand and plan for cash flow, quickly highlight errors, and help you rectify them.
A good finance partner can also help you stay on top of U.S. tax regulations. With the tax laws constantly changing, hiring a professional will give you peace of mind that your returns will be filed correctly. Your finance partner can help you create a custom tax strategy, flag tax obligations throughout the year, and hold you accountable for the strategy you create.
If you already have an accountant and you’re considering switching, now is a great time to evaluate new accounting options.
Related: 6 Steps to Make Tax Season As Painless as Possible
5. Be proactive
Whether or not you hire a partner to help you with your taxes, it’s a good idea for small businesses to create a payment plan for the year. This spring, document all your tax deadlines so you can pay your tax obligations before they are due. If your company has employees in another state, you may also have obligations there.
If you can, file your annual taxes early to avoid the extra burden at year-end. This also helps your business limit potential penalties and their associated interest.
If you have a team to support you, add quarterly budget check-ins to your calendar so everyone can keep pace with your cash flow, budgeting, and growth goals.
Right now, the birds are chirping and the sunshine beckons. You and your team have worked hard to submit your taxes promptly and in good order. The last thing you want to think about is 2024 taxes. But it’s important to spend a few hours planning for the year ahead, and to commit to an ongoing schedule of check-ins and payments. Ultimately, these investments will help you reduce your tax burden, avoid unnecessary stress next April, and plan for your company’s growth. With a solid plan in place, you’ll have the peace of mind to go out into the world and enjoy the post-tax season sun.
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