Many people think of tax season as of February, March, and the first part of April. But the reality is for small business owners in New Jersey; there are many things you can be doing in December to close out finances and prepare for a smooth upcoming tax season.
Waiting until the last minute to pull together the necessary documents and information related to your business taxes can be problematic during tax season. And you might find yourself closing down your business for a day to pull together the info while under deadline pressure.
New Jersey small business owners can take several steps now to prepare for a stress-free tax season.
Create an Accounting System
From the first days of your small business, you must separate business and personal finances. That way, it’s easier to account for income and expenses for your business without muddying things with personal transactions.
An excellent way to get started is to set up a business bank account and choose a bookkeeping program. You can use Excel or another form of manual reporting but know that this will require more time than purchasing software to do it for you.
No matter what you use, you’ll still need to monitor your finances and run regular reports to make sure things are going well.
If you didn’t have an accounting system this year, now is the time to create a spreadsheet with your transactions and income statements to prepare for submitting this information during tax season. Please don’t wait until spring to start this process, as it could be time-consuming.
Prepare Quarterly Reports and Statements for Taxes
Each quarter, take the time to prepare financial reports and statements. This will aid you in paying accurate estimated taxes to comply with laws and avoid fines.
But in addition to helping you estimate your quarterly taxes, this exercise will also guide you in evaluating your annual income and adjusting your business practices in accordance with this.
During the fourth quarter, you’ll also have time to make investments, purchases for new supplies, and other financial adjustments to close out the year favorably based on your goals.
You can also make informed decisions on employee bonuses or special contributions to retirement funds to offset income to improve your tax position while also delighting and retaining employees.
As the business owner, you’ll also have a better idea of your income for the year. That way, you can also make strategic decisions about retirement contributions and donations to meet personal financial goals.
December is an excellent time to check in with your tax advisor for tips and insights. Because these professionals have access to your financial documents to prepare your taxes, they can make recommendations for year-end activities you should participate in to maximize your tax write-offs and personal income.
Prepare Required Tax Statements for Employees
Small businesses in New Jersey with employees need to make sure they have all the necessary documentation and information to provide employees with the required tax documentation, including W-2s and Forms 940 and 941 for full-time employees. You’ll also need to prep Forms 1099 and 1096 for independent contractors for who you paid $600 or more during that tax year.
Having this payroll information ready at the end of the year will provide your tax advisor plenty of time to prepare your tax return before the deadline.
Learn About Deductions Your Business Qualifies For
Each year commit to reading more about possible deductions for your business. Even if you have a tax advisor, it’s a good idea to have at least a basic understanding of your small business tax deductions. This will help you make informed decisions about your finances throughout the year, but especially at year-end.
To learn more about possible deductions conveniently, you can download the IRS mobile app called IRS2Go.
Some expenses you might not have considered deductions include:
- Startup costs: these are especially important in your business’s first few years as you get things rolling.
- Education: whether it’s a seminar for you or a convention for one of your employees, you can write off education costs to improve your skills.
- Interest: any interest on lines of credit or mortgages is something you can write off.
You’ll also want to watch out for misclassifications or deductions that don’t qualify. These can trigger an audit. It’s a good idea to label each deduction and expense type throughout the year to ensure you don’t mistakenly put it in the wrong category when preparing your taxes.
Make sure your business qualifies for a home office deduction before using this tax advantage. And keep all payroll taxes set aside. Don’t use these funds you’ve withheld from your employees in the operations of your business. If you do, you could get in serious trouble with the IRS and need to create a plan for repaying the money promptly.
Expert Tax Preparation Services
While there are many do-it-yourself tax tools on the market, they leave room for errors that could lead to audits and often don’t maximize your deductions as much as possible.
Tsamutalis & Company LLC will work with you throughout the year to ensure compliance with tax laws and regulations while also maximizing your profits. Contact us to learn more about what it’s like to work with our team for your New Jersey small business accounting and tax needs.