It’s that time of year again … a time that can be very stressful, daunting and even harrowing for many business owners. That is why many entrepreneurs tend to procrastinate when it comes to preparing their yearly taxes, which only causes a whole new set of problems. If you are starting to feel overwhelmed and nervous just talking about getting your taxes ready, you are not alone.
“An estimated 52% of U.S. adults find the tax-filing process stressful,”– according to a TaxSlayer survey.
And you’re also not alone if you procrastinate either …
“Figures from the end of March suggest roughly 50 million — or one-third of all this year’s individual tax returns in the U.S. – will have been filed in the final two weeks before Tax Day.”(Inverse.com 2017)
So instead of focusing on all the steps you need to take for effective tax preparation, let’s also focus on ways to REDUCE your tax season stress so you can get your taxes ready on time, accurately and without causing undue anxiety. So here are four tips to reduce your stress level during the tax season:
4 Tips to Reduce Stress during Tax Season
ONE. HIRE A TAX PROFESSIONAL
“If you think it’s expensive to hire a professional to do the job, wait until you hire an amateur.”– Red Adair
You should not go it alone when it comes to tax preparation for your business, even a small business. Why not? First off, we can all admit that the tax code is very complicated and it’s changing all the time. Tax preparers or professionals are paid to understand the tax code as well as keep up with the inevitable tax code changes every year, so you don’t have to.
Second, you can save time and money by hiring a professional, as they are well trained in find deductions and tax credits that you may probably miss and these near misses can easily exceed the cost of having them prepare your return. The IRS estimates it can take over 20 hours to prepare an average tax return with deductions. That is valued time for a business owner. Instead, you could be spending that time on your own business operations and growth. Since time is money, how much is it worth to get you that 20+ hours back to do what you need to do?
Third, you have peace of mind knowing a trained and experienced professional is handling your taxes. They can answer your questions and resolve issues, find and resolve mistakes that could potentially trigger an IRS audit, and they can advise you through the entire year to make smarter tax-saving changes to your business as well as better planning for the years to come.
TWO. DO YOUR RESEARCH WHEN HIRING A TAX PROFESSIONAL
“Truly successful decision making relies on a balance between deliberate and instinctive thinking.”– Malcolm Gladwell
So now that you’ve made the wise decision to hire an expert, what questions should you ask and what research should you conduct before hiring one?
- Ask for their PTIN (preparer tax identification number). They are not allowed to prepare your taxes without one.
- Ask about their certifications. Are they a Certified Public Accountant (CPA), which is the gold standard, or are they an Enrolled Agent (EA)? A CPA is licensed by their state’s board of accountancy, are educated and tested in a wide range of accounting, auditing and tax knowledge. An Enrolled Agent is a federally licensed tax practitioner who specialize in taxation and have unlimited rights to represent clients before the IRS.
- Ask about their experience. How long have they been preparing taxes? How many business returns to they prepare each year? How experienced are they with business returns especially with the size and industry of your particular business?
- Ask about their continuing education. How often do they complete tax update courses? Tax preparation laws and deductions change every year including an addition of hundreds of new pieces of legislation regarding the tax code. These changes can affect your income tax return so ensure your tax professional is completing tax update courses every six months.
- Ask about their fees, timing, and their process. Do you need to meet them in person or can it be done virtually? What security and privacy do they provide for online data? How do they determine their fees? And what their typical turnaround time is and when is their deadlines for submitting tax records and reports to them?
- Trust your gut. Find someone you can trust, you have good chemistry with, that finds ways to reduce your stress rather than overwhelm you. It also a good idea to interview several professionals before you make a final decision.
THREE. FILE EARLY
“Procrastination is one of the most common and deadliest of diseases and its toll on success and happiness is heavy.”– Wayne Gretzky
To avoid that last-minute panic and stress, file as early as you can. When we are worried or overwhelmed by a task, it’s human nature to want to push it off until the last minute. Unfortunately, in the long run, this only compounds our stress. Many professionals suggest starting early and breaking the enormous task into several smaller ones.
Start as early as January 1. You can start preparing and collecting records as soon as the first business day of January. Usually by January 31, you should have the documents you need to file so you can complete the rest of it by early February. Take a few hours each week from January 1 to the first week of February to set aside for tax preparation. Make it an appointment on your calendar so nothing else gets in the way.
Break up your job into little pieces. Use your accountant’s checklist to get your items ready, do a few tasks or answer a few questions each day rather than becoming overwhelmed with the long list of tasks. (*We have provided a rough draft of tasks at the end of this blog but check with your tax professional or accountant for a complete list for the previous year).
Create a calm atmosphere. Listen to calming music, light a candle and set an atmosphere that will help you relax and focus on the task at hand. Reward each session with a favorite activity, treat or small break from your workday.
FOUR. MODIFY YOUR BUSINESS PROCESS TO MAKE YEAR-END PREPARATION EASIER
If you hate getting your taxes ready each year, then modifying your tax planning and record-keeping process with a year-round mentality. Gathering tax documents through the year, having an organized recordkeeping system and keep in touch with your tax professional at least quarterly. Being as organized and informed throughout the year can reduce stress, time and worry before the next tax season.
By using a bookkeeping or accounting software or app, you can keep accurate track of accounts receivable and accounts payables, have a clear understanding of profitability, and be prepared for the tax season.
Make it a goal to work closely with your financial or accounting professional, so you can explore different aspects of your business’ financial health including tax-planning, investments, capital gains tax on investments, ways to reduce income tax (for example: retirement accounts and FSAs), charitable giving and more. By working together with them, sharing your vision, and taking full advantage of their expertise you can further reduce tax season stress and work towards your goals.
Innovative Accounting’s Tax Filing Questions for Business Owners
This is a rough draft of a questionnaire that we provide our clients. (For a more detailed checklist, please contact our office to set up an appointment: VISIT OUR REQUEST A QUOTE PAGE). This is assuming we already handle the bookkeeping during the year and have all financial records up to date.
What is the business entity classification for your business?
What is the preferred completion date for your tax return?
- Is there a specific date you would prefer your tax return completed by?
- Would you prefer to plan on filing an extension to give you more time to answer these questions and/or gather your information if applicable?
- If you would like us to file an extension for you, please let us know what month you would like us to follow up with you regarding this questionnaire and your tax return?
*We cannot guarantee we will be able to prepare your tax return by your preferred date but knowing your preference can help us to schedule work accordingly.
What is the business owners’ names and percentage of ownership as of December 31, 2020?
- What is the Owner #1’s name, social security number, current address, phone number and ownership percentage?
- What is the Owner #2’s name, social security number, current address, phone number and ownership percentage?
- What is the Owner #3’s name, social security number, current address, phone number and ownership percentage?
Were there any changes to ownership during the year?
- If so, what were the changes made, and the date(s) of the each change?
COVID-19 Related Questions:
- Did you have employees take days off because they were sick from COVID, were caring for a family member sick from COVID, or were caring for a child that could not attend school/daycare due to COVID?
- Did you have greater than a 25% decrease in revenue in any quarter of 2020 compared to the same quarter of the previous year?
Is there any other information about your business that you feel is important for us to know when filing your taxes this year?
- Please upload previous year taxes IF we do not already have them on file. Please include all tax forms including federal and state, local, LLC, & property taxes if applicable as well.
Tax Preparation with Innovating Accounting
“… in this world, nothing is certain except death and taxes.”– Benjamin Franklin
We know it’s not fun, but it has to be done. We prepare each tax return as if it was our own. We send out initial questionnaires, perform initial tax work, and then follow up with questions and try to identify any missing deductions, errors, or documents that might affect the accuracy or amount of your taxes. We certainly don’t want you to have to pay any more than you absolutely have to. Additionally, we perform an extensive review process before filing each tax return.
NOTE: If you would like to work with Innovative Accounting to prepare your 2021 Tax Filing,
you must please contact us by our deadline: January 31, 2022. We are limited to how many new clients we can take on, so contact us today.
This is the second year that we will be paying taxes on our business. Last year, we were taken by surprise at how difficult it was to gather all of our information. This year, we will use a small business tax preparation service to help us. I love your suggestion to modify tax preparation by using a year-round thought process. We will be sure to gather our documents throughout the entire year rather than scramble to get them all organized at the end. Between this and notifying a small business tax preparation service, it should go pretty smoothly.