There are many perks that come with being self-employed or owning a small business, but doing taxes generally isn’t considered one of them.
In fact, 40 percent of small business owners surveyed by nonprofit mentorship organization SCORE in 2015 called taxes and bookkeeping the worst part of business ownership. The survey responses cited cost, time and complexity as the major headaches of tax time.
It’s no wonder that many of us put off doing taxes until the last minute.
However, as tax day approaches this year, there is some good news: The traditional April 15 filing date has been extended for 2016 to April 18, giving all of us an extra weekend to prepare. That includes sole proprietors, partnerships, LLCs and owners of S-corporations, who report business income on their personal tax returns. The April 18 date is due to federal offices, including the Internal Revenue Service, being closed this April 15 for a legal holiday in Washington D.C.
Aaron Dyer, senior vice president in the Core Banking division at City National Bank, said “Getting organized and becoming familiar with tax basics can reduce the stress on business owners at this time of year.”
Consider these four tips:
- Make a plan: Many accountants send their clients a tax organizing packet to help them prepare for their annual appointments. If you have one, fill it out. It will help you gather the documents your tax preparer needs to complete your return. If you didn’t get an organizer, the IRS website provides resources aimed at small business owners and the self-employed that you may find useful.
- Educate yourself: Find out what expenses legally can – and cannot – be taken as business tax deductions. That way, you can spend time documenting them and not chasing down non-deductible expenses. The IRS has a series of video tutorials that addresses frequently asked questions about taxes and small business.
- Go electronic: Still pulling out a pencil and eraser at tax time? Math mistakes and manual entries that are difficult to read could cause your tax return to be delayed or sent back to you. It is better to use a software program that automates your return, and to submit it electronically, rather than putting a hard copy in the mail. Before you file your return, go through this list of common errors to avoid.
- Secure records: It’s important to keep copies of your returns in a secure location for future reference. You must also keep certain business records and financial documents for at least three years in case you amend your return. The IRS publishes a checklist of which records to keep and for how long.
Once you make it through this month, make a resolution to get started earlier next year – so you’ll have more time to focus on running your company.
“Your time – bringing in new clients and running your company – is valuable,” Dyer said. “Use it wisely and focus on what you do best.”
If you find yourself struggling to complete your return by April 18, consider filing an extension rather than missing the deadline. Just be aware that filing for an extension does not mean you can delay payment if you have tax liability. Missing a deadline will trigger IRS fines and penalties – and that would definitely not be a stress-buster.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. City National, as a matter of policy, does not give tax, accounting, regulatory or legal advice.