The end of the year is fast approaching, and every business owner knows what that means. Tax season is almost here, and with it a host of headaches and problems.
But it doesn’t have to be that way. Not for you at least. Here at Foray Business Group, we think tax season should feel like any other day of the year. Certainly not the mind-numbing, soul-crushing time it is for so many business owners!
So how do you achieve a smooth tax season? It starts by preparing your books now.
“But it’s only November!” you may be saying. Trust us, it’s much better to take small steps now to prepare your books than to wait until January or February to get everything done.
So why start now? Because…
1) When January comes, you’ll be able to focus on your marketing plans for the new year instead of spending all your time on bookkeeping.
2) You’ll spend less money on CPA and bookkeeping fees because your books are already organized.
3) You’ll be better prepared for financial planning (or getting a loan if you need).
Have we convinced you yet that now is the best time to prepare your books? Great! Now let’s go through three quick and easy steps to help you make that happen.
1. Separate your business and personal finances.
Even sole proprietors can benefit from this suggestion. And if your business is an LLC or a C-Corporation, a separate business bank account is absolutely crucial, and there are several reasons why.
First of all, it cuts down on a lot of confusion for you, your bookkeeper, and your CPA.
It also saves you money. Did you know your CPA and your bookkeeper will charge you an extra fee if they have to separate your business and personal expenses for you?
There’s a reason for that. Parsing through hundreds of expenses takes a lot of time. So do your CPA and bookkeeper (and your budget!) a favor by paying for that business lunch with your business credit card and that late-night Taco Bell run with your personal card.
Keeping business and personal finances separate also helps you better protect your assets. For instance, if the IRS decides to audit you, having a separate business bank account makes it easier for them to see which purchases are business-related and why you wrote them off in your taxes.
In the same vein, if your business is ever sued—which it hopefully never will be—you can make it harder for your opponent to go after your personal assets by keeping expenses separate.
2. Learn how to take out an owner’s draw.
As we mentioned earlier, paying for a personal expense with a business credit card is not a good idea. At all.
But what if you don’t have enough money in your personal bank account to pay for that personal expense?
There’s a simple solution to that problem. Simply transfer money from your business account to your personal account before making that purchase.
How do you do that? By making what’s called an owner’s draw.
Don’t let that term intimidate you. To make an owner’s draw, simply transfer money to your personal account by writing yourself a check, withdrawing it from an ATM, or making an online transfer.
Then, in your accounting software, mark the transaction as an owner’s draw to avoid future confusion for your bookkeeper. Here’s an easy way to pay yourself with an owner’s draw in QuickBooks.
3. Store your receipts electronically.
Your CPA and bookkeeper will also charge you more if they have to sift through a shoebox full of paper receipts.
Save yourself some money by storing your receipts electronically and assigning them to the correct transactions in your accounting software.
Any online bookkeeping software will let you do this, including QuickBooks, Xero, Freshbooks, Wave, and more.
This doesn’t have to take a ton of time. Simply set aside five minutes at the end of every day to do this task. By the end of the year, you’ll be glad you did!