Tax filing deadlines are enough to cause shivers, shakes, and sweats, and since two important deadlines are looming (depending on the type of business you own), we bet there are a lot of unhappy, frustrated, and maybe even scared readers out there right now.
Whether March 15 or April 15 is the date you fear most in life, we thought we’d take this opportunity to commiserate while also providing some tips and insights from fellow business owners and tax professionals alike—ideas that might make the whole process a lot less stressful.
Bottom line: tax season doesn’t have to be this big, ugly beast. Learn to tame it into something manageable.
Ditch the Shoebox
It’s a bit of cliché, isn’t it, the jokes about people stuffing receipts into shoeboxes, only to curse themselves when they face the unorganized mess year after year when they sit down to file their taxes?
The jokes persist because, sadly, they are true. The problem has less to do with fear of the IRS than it has to do with fear of organization. And the people we talked to said that if you want to learn to truly manage the tax beast, this is the one behavior that MUST change.
Deborah Sweeney is the CEO of MyCorporation, which has helped small business clients and real estate investors incorporate their businesses in a reliable and affordable manner for over fifteen years.
Sweeney says, “Throw away the shoebox as soon as humanly possible. I know it seems easy to just throw your day’s receipt into a drawer or a file and forget about them, but you really are shooting yourself in the foot. Make being organized a part of your job and set aside time for paperwork. A lot of people I talk to actually use paperwork as a sort of a warm-up for the day. They’ll pour themselves a cup of coffee, go through the last day’s receipts, and then launch into the rest of their day. You should also take steps to digitize all of your receipts and back up your data. We actually started a service called ‘MyCorp Vault’ because many of our clients were losing years of records and receipts to computer failure.”
Shelly Collins is the owner of owner of Clutter Contained, a professional organizing firm that offers services to residential and small business clients. She says that ditching the shoebox method goes beyond mere organizational efforts—it helps you gain a better understanding of where you stand with your business.
Collins says, “I have worked with many business owners who use the shoebox method, leaving their CPAs to sort out their taxes at the end of the year. The shocking thing about this is these clients, usually otherwise very successful business owners, haven’t a clue what their expenses are or what their tax liability might be like at the end of the year. Tax time is extremely stressful for this type of client because they realize not only do they not know what their tax liability is, they often don’t even have a sure idea of where their business stands financially.”
She goes onto explain that many of these clients compound the issue by filing extensions, which, she smartly notes, only “extends the stress.”
Marquita Miller, an accountant, business coach, and CEO of Five Star Tax & Business Solutions, echoes these sentiments. “My advice to business owners using the shoebox is that you are working too hard! You can reduce your time so you can get back to making money by using software options.”
She also notes that it’s important to find a software solution and method of tracking expenses that works for you. For example, she says that her “tech geeks” prefer using phone apps that allow them to scan receipts right at the store at the time of purchase. “They are able to download into accounting software or at least a spreadsheet to give to the accountant,” she says.
Software Can Soften the Burden
It’s easier to ditch the shoebox method today than it ever was before thanks to the seemingly endless options in business and accounting software solutions on the market. Products that are popular among small business owners include QuickBooks and FreshBooks, but, like anything else in life, it’s important to review your options and find a solution that makes sense for your business…and the way you work.
Jonathan Barsade is a former tax attorney with Akin Gump and currently CEO of Exactor, which offers sales tax compliance solutions. He says business owners should consider five points when evaluating software: Make sure it’s comprehensive, low-maintenance, and easy to install and integrate. Also make sure that it will file all of your tax returns for you and that your software technology partner will back you up.
Regarding this last point, Barsade explains, “Technology has also made it much easier for taxing authorities to step up the number of notices and assessments they send out to businesses over the past year. When a notice is received, the business has to collect information, provide proof of filing, and show evidence of payment to resolve it. Make sure your tax solution partner will do this for you—and will not charge you any extra fee for this service.”
Of course, the most important thing you need to remember about any sort of accounting software is that it still requires some human effort. Sweeney notes, “Just remember that QuickBooks is a tool, rather than a magic wand—you still have to input data and keep track of what you are spending.”
The other thing to keep in mind is that a fancy accounting system isn’t necessarily the answer (though it might be). You need to find a system that you’re comfortable using and that you’ll stick to using regularly.
Collins says, “After exploring QuickBooks and FreshBooks, I decided that both were overkill for what I needed as a solo-entrepreneur. Since I positively loathe doing finances, I knew I would have the most success if I could set up a simple, yet effective system. I set up an Excel spreadsheet with the idea that I would reevaluate my needs as my business grew. Three years into my business, the Excel spreadsheet still does exactly what I need it to do without overcomplicating the matter.”
Develop a Zen Attitude
Instead of avoiding tax and accounting tasks, embrace them. Embrace your fears around taxes and money as well. This was the overwhelming refrain we heard from the tax professionals and business owners who responded to our query about how they handle tax season.
Sweeney says, “A lot of newer business owners build up taxes into this insurmountable beast, but really they are very manageable! I was an attorney before I bought MyCorp, so I’ve always had a bit of an organizational bend, which really helped when I took over and wasn’t too sure how the finances worked. Knowing what is being spent, and what you will possibly owe, really takes the edge off. Embrace your business finances, and you’ll find that the monster isn’t that frightening.”
Miller adds, “I help my clients to handle the emotions and fear of taxes by allowing them to know the IRS is not the boogie man. The IRS is not sitting and waiting on you to mess up and take you to jail! Personally, I handled the fear by looking at it from a smaller view. Handling your personal household money is similar to [how you] handle your business finances. Also, I took (and encourage my clients) to take the ‘task’ out of the process. I encourage my clients to look at it as a process to help them operate better.”
Get Professional Help
No, we’re not talking therapy. We’re talking about potentially outsourcing some or all of the work to an outside firm.
There are many reasons you might consider outsourcing, but two of the biggest include time and expertise. Delegating this work to a professional saves you time that you can put back into your business. Relying on someone else’s expertise in all things IRS can help you sleep a little more easily at night.
Irving Jankovitz, CPA, is a tax partner with The Mironov Group, LLC, Certified Public Accountants & Consultants. Regarding the issue of expertise, he delves even further: “With the complexity of the Internal Revenue Code, taking into consideration passive loss rules, net investment income rules, itemized deductions, alternative minimum taxes, etc., it is overly cumbersome for a business to keep track of these various taxes and carryover amounts. You must deal with limitations that are calculated by the tax software. It is advisable to use the services of a CPA who specializes in taxation and can guide you accordingly so that you reap the greatest benefits and minimize your risk.”
When it comes to evaluating firms, Rochelle Kimmins, MBA, CPA, CFP®—who is a tax manager with The Mironov Group—offers this advice: “When choosing a CPA firm for tax preparation and planning services, you should determine whether the firm has experience in your industry or with particular transactions unique to your business. You may wish to speak with the CPA firm’s current clients and ask about their positive and negative experiences dealing with the firm. Finally, do some research to make sure the CPA’s reputation and background are impeccable. You don’t want to hire someone with a questionable history or pending investigations.”
What other tips and words of advice can you offer your fellow business owners? Do you have a favorite accounting software solution? We want to hear what you think! Share in the comments.