With summer here and spring behind us, taxes are likely the last thing on your mind right now. But have you noticed how quickly tax season seems to creep up on you? Taxes can be the most dreaded part of the year for some people. One persistent rumor floating around is that taxes have to be inherently complicated for the person filing them. While taxes are certainly no picnic, what many people don’t realize is that they can be much simpler than they appear to be. It all comes down to simple preparation. If you want next year’s tax filing to go over more quickly and smoothly than it has in the past, here are five things you can do early on to make that happen:
Put this list together early. Find out what documents and information you will need for a complete tax filing, and make yourself a checklist. As you compile each document or piece of information, check it off your list, and when the list is completed, you can begin filing your taxes or send your completed set of documents to your CPA for filing. Though the exact documents you need will vary based on your specific situation, here are some general things you will need:
It is also a good idea to decide early on whether or not you think you will need a tax extension. If you know you will be getting K-1s after the deadline it will be a good idea for you to file an extension.
Quickbooks is a very common accounting software program that allows you to account for all your income and expenses. You can consider the cloud options that are available, since this allows you and your CPA to collaborate in real time. Another benefit of being on the cloud is you don’t have to send your CPA copies of your file backups. This will cut down the time it takes to get your taxes complete.
You are required to keep all of your receipts in order to support the deductions you report on your tax return. These receipts should be kept for three years from the time you file your tax return. There are several apps for your smart phone that will allow you to scan or take a picture and save them to your computer. You can also save your receipts right in Quickbooks by attaching them to the transactions. Remember that some receipts require some additional information such as meals, entertainment and travel expenses. These expenses require that you indicate who you were with, what was discussed or where you were traveling. You cannot rely strictly on bank or credit card statements as a substitute for actual receipts. These statements do not provide enough information to support the expense per the IRS requirements.
Some expenses are required to be depreciated or amortized over time rather than to be expensed in one year. These will typically be things like equipment and vehicles that will be used for more than one year. You should keep a list of these kinds of items that you have purchased throughout the year to discuss with your CPA when you sit down to do your taxes.
The best way to avoid any surprises when you are filing your tax return is to plan ahead and do a tax projection with your CPA before the end of each year. Your CPA can project your income and expenses to determine what your anticipated tax liability may be. Knowing this information before the year is over will allow you to make any necessary adjustments that you need to before the end of the year. (Example: change the number of exemptions you are claiming on your W-2, purchase equipment or contribute to a retirement plan, make a donation to a charitable organization.)
Hopefully these items will aid your preparation and ease your stress next time tax season rolls around.
Clyde Jones is the founder and owner of the Jones CPA Group. He is a CPA with over twenty years of experience in public accounting. He specializes in tax preparation for businesses and individuals. He helps his clients with tax strategies, business structuring, business valuation as well as accounting and payroll services.