April 17th, the big day for many businesses, is less than a month away, but we know that many small business owners have yet to start to prepare their taxes, and the pressure is building.
There are a variety of reasons that small business owners fall behind in their tax preparation. Poor record-keeping is one common culprit. If receipts, invoices, and other necessary documentation are recorded haphazardly or without a clear filing system, a business can be put on the back foot immediately. Complex tax situations can also cause delays if business owners need clarification about their situation or are overwhelmed by the details. And there’s the big one, of course: procrastination. Sometimes it’s hard to get going and even more challenging as the deadline approaches.
Whatever the reason, there’s no need to panic. There are solutions for every business, and there is time to do what needs to be done.
STEP ONE: PREPARE TO FILE FOR AN EXTENSION
This late in the game, the first step for most business owners will not be to prepare their return but rather to prepare to file for an extension. There’s no shame in it, and there’s no penalty for it either, with one key caveat: you have to go ahead and pay a reasonably accurate estimate of your ultimate tax bill. That’s where the “prepare” comes in.
You’ll want to gather as much information as possible about your income and expenses for the previous tax year and organize them at least minimally. Your goal is not to focus on details but to get reasonable annual totals. In the roughest sense, income minus expenses is your estimated tax liability.
This doesn’t sound like a terribly complicated process, and it isn’t, but it’s a good time to ask a bookkeeping professional for help. A reputable bookkeeper is constantly categorizing and organizing disparate documentation and will be able to get an estimate of your taxes far more quickly – and accurately – than you can yourself.
STEP TWO: GET ORGANIZED
Once you’ve estimated your tax bill (and paid it) and filed for an extension, you have half a year to file your return. Sounds great, but you still face whatever headwinds held you back in the first place. Plus, you’re still running your business, generating income and invoices for the next tax deadline.
Now is the time to get organized. Gather your documentation – invoices, receipts, bank statements, credit card statements, and anything related to your business income and expenses – and organize them by date and category. If you are going to use tax preparation software, enter the relevant information now that you have it readily at hand.
You can do this on your own, but once again, if you need help, there are professionals whose daily business is entirely focused on organizing documentation to keep accounts up to date and ready for deep analysis (including tax preparation).
STEP THREE: FILE YOUR TAXES
Once you have your documents under control and have entered the numbers into whatever software or online filing app you use, you’ll be ready to file your taxes. This may be two months from now or six months from now, but the key is there is plenty of time to do it. Once you have relieved the pressure of the initial deadline by estimating your tax bill and filing for an extension, you can formulate a plan of action, organize your documentation, and finish the tax filing process.
The question to ask yourself is, will you get it done, or will you face the same barriers as before? And will you continue to face those same barriers year after year?
If so (have we mentioned this?), it’s an excellent time to consider the benefits of financial process outsourcing. Whatever the reasons you fell behind on your tax preparation, a reputable bookkeeper can help you overcome them. Poor recordkeeping? A bookkeeper’s business revolves around categorizing and organizing disparate documentation. Complex tax situations? Professional bookkeepers work with tax forms and schedules constantly, so they know what is needed or can find out. Plain old procrastination? Proven bookkeepers stay in business because they keep up with processes weekly, monthly, and quarterly.
If you still haven’t started your taxes, relax – and then take action. Organize your documents, get a solid estimate of your final tax bill, and pay that amount when you file for an extension. After that, you have another six months to get everything together and file your return. The key is to do it and to get professional help if you are still struggling.