Getting Ready for Tax Season: Your 5+1 steps Guide to Smoother Filing
Tax season can be a daunting time for many small business owners, freelancers, and entrepreneurs. Are you scratching your head, wondering where to even begin? Are you nervous about navigating complex tax laws and maximizing your returns?
Last year was my first filing in the U.S., and between the crazy amount of new rules and decisions, it was clear that managing this process effectively is crucial. Whether you choose to tackle it yourself or enlist professional help can make all the difference.
If you're aiming to make this tax season a success in terms of organization, and also want to be better prepared for next year, check out this guide. Straightforward and clear concepts will guide you efficiently, saving you time and stress!
1. Decide Whether You'll DIY or Use a Tax Preparer
As you prepare for tax season, one of the first decisions you'll need to make is whether to file taxes yourself or engage a tax professional. For those with straightforward tax situations, such as single filers with a W-2 and no dependents, tax software might be sufficient. These platforms often offer guidance and the option to have a professional review your return for an additional fee. However, if your financial life is more complex—perhaps involving self-employment, multiple income streams, or assets in another country—a tax expert can be invaluable in ensuring accuracy and compliance. That’s my no-hesitation option for sure!
Pro tip: Start vetting tax professionals well before tax season begins. Look for someone with experience in your specific financial scenario and solid reviews from other business owners. Ask your contacts for references!
2. Gather and Organize Your Financial Documents
Efficient tax preparation starts with organization. What else would you expect from an Organization and Efficiency Coach, right? But really, gather all relevant financial documents such as receipts, invoices, bank statements, and previous tax returns. Ensure every transaction from the past year is accounted for.
Pro tip: Utilize digital tools to keep your documents organized year-round, which simplifies the process when tax season arrives. If you’re starting or too small to invest in this kind of tool, a well organized Google Sheet will be enough! Find the one that I used here (it's a free template just for you!).
3. Review and Update Your Bookkeeping
Ensure your bookkeeping is up-to-date and accurate. Misclassified transactions or overlooked deductions can lead to errors that may trigger audits or penalties. There are many digital tools that can also help here, but also many Tax Professionals will offer their own tool and/or service for this, no need to overcomplicate it!
Pro tip: Regular bookkeeping reviews throughout the year—not just at tax time—can help keep your finances in clear order. Looking back at 12 months of operations can be messy, you can do it Quarterly or even Monthly depending on your business size.
4. Maximize Your Deductions and Credits
Identify all possible deductions and tax credits. Common deductions for small businesses include home office expenses, supplies, and travel. Also, consider making contributions to retirement plans like an IRA, which can reduce your taxable income.
Pro tip: Schedule an end-of-year review with your tax advisor to discuss potential deductions and make any last-minute contributions to retirement accounts.
5. Estimate Your Taxes and Check Eligibility for Credits
Avoid surprises by estimating your tax liability ahead of time. This helps in planning any necessary quarterly estimated tax payments.
Pro tip: Use an online tax calculator or consult with your accountant to estimate your taxes accurately and explore all eligible tax credits.
Bonus tip: File an Extension if Needed & Prepare Better!
If the year has been particularly chaotic and things are not easy to put together, consider filing an extension. This can provide additional time to organize your finances without the stress of rushing through the process. But then, use the extra time afforded by an extension not just to prepare your taxes but to refine your overall financial management practices.
Whether you file for an extension or not, tax season is also a great reminder to prepare for the next financial year. Observe what went well and what didn't, what was fast and easy and what took too long or was more difficult. Think about how you could do it differently so that next year it's easier, faster, and better. For example, set up a system that allows you to continuously track your finances, making next year’s tax season even smoother, and automate as much of the financial tracking as possible.
In conclusion: embrace preparedness. Tax season is also a perfect time to reassess, realign, and reinvigorate not only your business but also your personal finances. Approach tax season not as an ordeal but as an opportunity to fine-tune your financial strategy and ensure your business is on solid footing. Implementing a systematic approach to tax preparation can free up your mental space to focus on what you love most about your business. By getting the must-dos out of the way efficiently, you reserve your energy for creativity and spontaneity—the aspects of life and business that truly bring you joy.
If you found this guide helpful, subscribe below for more insights tailored to help small business owners, entrepreneurs, and freelancers navigate the complexities of financial management with ease and clarity, and other topics to make your life easier and more organized. You can also find me and learn more about me, and about Organization & Clarity through my Instagram account: @martafores_coach. Join a community committed to making things simpler.
