The October 15th tax deferral deadline is fast approaching for small business owners
Millions of small business owners and consumers who deferred taxes to Oct. 15th should be preparing for that deadline this week.
If you are one of the millions who waited until Oct. 15 to file their 2020 U.S. tax returns, then take note. This extended deadline is coming up. Even better, you will have to pay your 2021 taxes in six months. Don't worry though. Jaclyn Strauss CPA, says, "This is your chance to take action on what you mumble under your breath and implement good habits all year."
Ensure that you update your accounting software frequently. Strauss recommends that you update your accounting software weekly, or, for smaller businesses, monthly. However, if you approach accounting as a daily email check, you will be able to itemize transactions in minutes because you won't have to remember them. It's easy. Strauss says that while you are in QuickBooks, Xero or any other program, you should also check your profit-and-loss statement and any unpaid invoices.
It's not only about taxes, but also about financial engagement. It gives you a deeper understanding of your business's performance throughout the year and the activities that you engage in," states Mike Jesowshek (CPA), host of the Small Business tax savings podcast. It's also possible to do a better job by recalling cash expenses that you may have forgotten in a week but not deduct. He says that inaccurate bookkeeping is the most common problem he sees.
Keep good records. It is not enough to simply record transactions in order to be eligible for some deductions. Alex Oware, a CPA and tax expert at JustAnswer.com, says that taxpayers must prove the amount, date, location, and time of any travel or automobile expense. Another reason to spend five to ten minutes daily accounting is a good idea is that you'll be able to recall that you drove 32 miles yesterday, 10 of those were for your company, and that you paid $25 for lunch because you shared it with your intern. These details should be noted in memos along with transactions.
Skip the extension next time. Jesowshek says that a common mistake is to think that an extension extends the time it takes to pay. It doesn't. Tax day is April 15. Interest and penalties begin to accrue from that date. He says that if you request an extension, "include payment."
Tax plan. Do you know what hurts your soul? To discover a huge tax bill, it takes 20 to 80 hours of October accounting. It's too late. Jesowshek suggests instead that you "implement strategies throughout your year to ensure that you pay the lowest tax possible." This is crucial. Many strategies will no longer be available after the year ends.
Meet with an expert now. Talk about your business structure (LLC or C corporation, S corp, etc. ), your accounting methods (cash vs. accrual), your inventory management, available incentives (tax credits, green energy, employee retention, Covid-related programs and retirement plan usage - all of which can have an enormous impact on your tax bill. This month's meeting may make April 15, 2022 less painful and, dare we say, almost sweet.