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9 Small Business Practices to Instate in 2022 to Make Tax Season Simple
Tax season is just around the corner, which means you’re probably dreading tax prep right now. While there’s not much you can do for 2021 taxes, you can start practicing better habits throughout 2022 so you’re better prepared next year. Here are some of the best small business accounting practices to help make tax season simple.
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Use Digital Recordkeeping
Paper clutter is an unnecessary hindrance when it comes to tax prep. You can easily digitize all your files so they’re indexed and ready when you need them. You can also backup your digital files so they’re protected in case of a fire or theft. Trust us: Nearly every CPA prefers digital files over paper ones. They’re simpler, more convenient, and they just make sense.
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Streamline Your Bookkeeping
Accounts receivable and accounts payable automation are a great way to streamline your accounting so everything is organized for tax season. There are lots of accounting automation software options available, so spend a little time finding the best option for your business. Bonus: This tip can save you time and money throughout the year, too.
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Track Your Expenses
Many business expenses are tax-deductible, but you’ll need records for tax purposes. Make sure you retain all your business-related receipts, and take a few seconds to jot a note on the receipt so you remember why you made the purchase. For example, if you took a customer to lunch, write the name of the customer on the receipt. Then snap a quick photo, upload the receipt to your digital storage system, and you can throw the paper version away (or keep it handy as a paper backup—your choice).
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Ask for Receipts for Donations
Most charities will happily hand over a receipt if you make a donation, but you may need to ask. You’ll need these receipts when you file your taxes, so don’t be shy. Just say you need a record for tax purposes, and keep the receipt on file with your other expenses. In most situations, charitable contributions are 100% deductible on your taxes.
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Outsource Your Payroll
Unless you have a skilled in-house accountant, it’s best to outsource your payroll to a third party. This helps cut down on tax prep and reduces your liability for errors. Most payroll companies handle all the tax-related tasks, like calculating withholdings and issuing W-2s at year-end.
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Keep Financial Reports Organized and Up-to-Date
Your accountant will need financial reports to file your taxes. It’s best to update these reports each month so they’re ready when you need them. Otherwise, you might spend hours (or even days) organizing your finances just before tax season.
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Collect Taxes as Needed
Some businesses are required by law to collect taxes on sales of goods and services. You’ll need to check the laws in your area and state to make sure you’re meeting requirements. If you haven’t been collecting and filing sales and use tax, expect to pay a lot of fines and interest.
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Make Sure You’re Filing Correctly
When you initially set up your business, you chose a business structure. (Even if you didn’t actively “choose” a business structure, you automatically defaulted to a sole proprietor for tax purposes.) Now is a great time to meet with your accountant and make sure you're filing taxes correctly. Each business entity has certain guidelines to follow, and the structure you originally chose may not make the most sense financially going forward. This tax season, consult your CPA to see if you should make a switch.
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Use a Business Bank Account
Many small business owners (particularly sole proprietors) never set up a business account for their finances. They may use a separate personal account or even use their personal account for business purposes, too. (This is a big mistake, by the way.) If you’ve fallen into this pattern, 2022 is the year to get organized. Head to your local bank and apply for a business account. Keep all your personal finances separate from your business finances to make tax prep much easier next year.
Final Thoughts
If you haven’t been following this advice so far, don’t worry. You may struggle a bit with tax preparation this year, but you can use 2022 to get ahead of the game for next year. Remember: The most important thing is organization. Document everything, and choose a recordkeeping system that makes it easy to find what you need. Everything else is easy.
Meet The Author:
Susan Ranford is an expert on career coaching, business advice, and workplace rights. She has written for New York Jobs, IAmWire, and ZipJob. In her blogging and writing, she seeks to shed light on issues related to employment, business, and finance to help others understand different industries and find the right job fit for them.
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