Preparing for tax season.

Tax season doesn't have to be a source of stress and scrambling. In fact, for a prepared business owner, it's an opportunity to maximize deductions and gain a clearer understanding of your financial health. By putting in a little work throughout the year, you can transform tax season from a dreaded deadline into a smooth and strategic process.

Here's a breakdown of what every business owner should do to prepare for tax season.

1. Maintain Excellent Records, All Year Long

This is the single most important step. Don't wait until January to start gathering your paperwork. Instead, make it a habit to track and organize your financial records throughout the year.

• Separate Business and Personal Finances: This is non-negotiable. Use a separate business bank account and credit card for all business-related transactions. This makes it infinitely easier to track business income and expenses.

• Keep a Digital File of Receipts: Gone are the days of shoeboxes filled with paper receipts. Use a mobile app or a scanner to digitize your receipts. This ensures you have a backup and makes it easy to search for specific expenses.

• Track Your Mileage: If you use a vehicle for business, keep a detailed log. You can use a mileage tracking app or a simple spreadsheet to record the date, purpose of the trip, starting and ending mileage, and tolls.

2. Understand and Track Your Deductible Expenses

Maximizing your deductions is the key to minimizing your tax bill. To do this, you need to understand what you can and can't deduct. In general, you can deduct any business expense that is both "ordinary" (common and accepted in your industry) and "necessary" (helpful and appropriate for your business).

Some common deductions for small businesses include:

• Home Office Deduction: If you have a dedicated space in your home used exclusively for business, you can deduct a portion of your rent/mortgage, utilities, and other home-related expenses.

• Vehicle Expenses: You can choose to deduct either the standard mileage rate or the actual expenses (gas, oil changes, repairs, insurance, etc.).

• Professional Fees: This includes fees paid to accountants, lawyers, and other professional advisors.

• Office Supplies and Equipment: The cost of pens, paper, printers, computers, and other supplies.

• Advertising and Marketing: Costs for your website, social media ads, business cards, etc.

• Business Travel: The cost of airfare, lodging, and meals (subject to a 50% limit) when traveling for business.

3. Get Your Documents in Order

Before you or your tax professional can file, you need to have a few key documents ready. Gather and organize these ahead of time to avoid last-minute stress.

• Financial Statements: Have your Income Statement (also known as a Profit and Loss statement) and your Balance Sheet prepared. These are essential for showing your annual performance and financial position.

• Forms 1099-NEC and 1099-K: If you hired independent contractors and paid them over $600, you are responsible for issuing Form 1099-NEC. You may also receive a 1099-K from credit card processors or third-party settlement organizations if you meet certain criteria.

• W-2s: If you have employees, make sure you've received their W-2s from your payroll service.

• Receipts and Invoices: Have all your expense receipts, bills, and customer invoices easily accessible.

4. Know Your Deadlines

Tax deadlines vary depending on your business structure. Missing a deadline can result in penalties and interest.

• S-Corps and Partnerships: The tax return is typically due on March 15.

• C-Corps: The tax return is typically due on April 15.

• Sole Proprietors: As you file on a Schedule C with your personal return, the deadline is typically April 15.

Remember, if you need more time, you can file for an extension, but be aware that an extension to file is not an extension to pay.

By taking these steps, you're not just preparing for a tax filing; you're building a habit of financial discipline that will benefit your business year-round. If all of this still feels daunting, consider hiring a professional. A good accountant can save you money, time, and a lot of headaches, making them one of the best investments you can make.