These trying times are starting to take a toll on small businesses. Not to sound pessimistic, but the IRS instructs small business owners that there might be more troubling time ahead. Therefore, it makes sense to get ready for challenges that await small businesses in the foreseeable future.
As per the IRS, it may just be the busiest filing year in American tax history. Technically, the IRS claims that around 70 million tax returns still require processing for the tax year 2019. With the introduction of the CARES Act and other Coronavirus-related assistance laws, there will be significant changes to tax returns.
For small business owners, however, taxes can be a terrifying five-letter-word. Now, amidst this crisis situation, you need to up your tax preparation and accounting knowledge. Sure, it can be frustrating to navigate complicated information, but knowing basics can help you save a lot of time, stress, and money.
To make things simpler, here’s some guidance on how your small business can take appropriate tax and accounting measures in these uncertain times:
Continue to Follow Standard Tax Practices
Just because numerous elements are changing under new tax code doesn’t mean you should throw common tax regulations out of the window. In fact, abide by these fundamental tax practices fervently:
Understand the Nature of Your Taxable Income
The total taxes you pay depends on your current taxable income and not your total net income. And when you decrease the amount of your taxable income, you will pay fewer taxes.
Keep an Eye on Your Tax Withholdings
In short, withholdings represent a small percentage employer put aside to cover employees’ taxes. Ideally, you should adjust your tax withholdings so that you can have break-even. Now, It doesn’t garner a huge refund, but you wouldn’t have to send a big check to the IRS.
Make the Most Out of Tax Credits
Tax credits matter so much because they can significantly decrease your annual tax bill. You don’t have to look for every tax credit on your own. Instead, look for a tax pro who can help you avail possible tax credit, such as small business expenses.
Don’t Leave Out Tax Deductions
Well, deductions decrease your total taxable income, and more deductions mean you will owe fewer taxes to the IRS. Therefore, don’t leave out any itemizing. For instance, you can simplify further and create a checklist of items that need itemization.
Hold Your Audit Unless You Have a Refund Situation
As of now, the suspension of audits is in effect. The IRS, however, announced to resume the audit processing after the 15th of July. That said, it would be accurate to expect that the IRS will use its audit authority to put an end to erroneous refunds.
And when that happens, you don’t want to be on the IRS’ radar. Therefore, make sure your tax refunds are not questionable Mostly, it includes wages verification problems and possible identity theft. In fact, there’s a good chance IRS’ filing tax filters will hold specific refunds that require additional verification.
Follow the Official IRS Transcripts
You’d be surprised how many account-oriented questions you can answer by assessing official IRS transcripts. Before AGI, the total estimated tax payments, and penalties are some of the common and valid questions that the IRS transcripts can answer.
You can, for instance, get your hands on a copy of your previous three years of tax returns and their W-2s or 1099s of the last 10 years. You can get access to these transcripts by instantly creating an online IRS account. Similarly, an automated transcript is another option where you get delivery of your IRS transcripts.
Learn Accounting Fundamentals
From new start-ups to established small businesses, understanding the basic accounting approaches are more relevant than ever. In fact, these accounting measures will help you remain organized:
Master the Basic Accounting Tactics.
Maybe when you started your small business, you just wanted to accumulate more wealth than you had. However, it is time to speed things up a little and learn the accounting terminologies and basic calculations that will save you plenty of time. It is nothing to be embarrassed about, if you are not familiar with technical accounting standards, take one step at a time to learn.
Expect Major Expenses
Yes, you will have to brace yourself for more expenses. And that means more cautious maintenance of your business’ cash flow and balance sheet. If you take care of your financial statements on your own, that’s great.
Unfortunately, not all small business owners understand the intricate details of complex financial reports. Therefore, make a surprising change and learn everything you can about how financial reports function to make the right addition and subtraction of your annual expenses. Consequently, it will also encourage you to maintain up-to-date accounting statements.
Maintain an Emergency Fund
There’s only so much your business can predict. Besides, you never know what the future might bring. So, create a separate emergency fund that would serve as a contingency plan for your small business and help you recover from unexpected large expenses.
Watch For More Tax Changes
As the IRS continues to process a multitude of tax returns, it is better to file yours as soon as possible. Remember, the eligibility of the stimulus and CARES Act depends on “when” you file your tax returns. So, if you haven’t had the chance to file your 2020 tax return, now would be the perfect time to do it.
Besides, you can electronically file your returns in a single day, and the acceptance also takes a short time. However, as more updated information emerges from the official IRS authorities, small businesses need to be vigilant about new tax changes.
If you feel you cannot undertake all the tax and accounting responsibilities of your small business on your own, hire an experienced accountant or CPA to get the best analytical insight of the financial health of your business. On average, small business owners spend between 20-120 hours on their taxes and books. And that’s why the services of a tax expert can help you manage your financial books better and even brainstorm new innovative ideas to survive in today’s unpredictable economy.
BRW Tax & Accounting supports small businesses in Colorado and provides transparent membership pricing, free virtual consultations, and a secure client portal for premium contactless support from anywhere. Click here to schedule your free consultation today!