Tax time is approaching fast. It’s the time of year small business owners look toward with the kind of looming dread you'd expect to see on a journey into Mordor. But tax season doesn’t have to be a perilous march into darkness. With a bit of forward preparation, a plan of attack, and a fellowship of experts on your side, you’ll emerge the champion.To me, there are two elements to a successful, hassle-free tax season: Your tax expert, and you. Having the right tax-expert by your side will ensure you return from your perilous journey alive and well. But there is also plenty of small tips and tricks you can adopt to make life easier for that person, save yourself money, and avoid trouble.
Tax season doesn’t have to be a perilous march into darkness. With a bit of forward preparation, a plan of attack, and a fellowship of experts on your side, you’ll emerge the champion.
In the first half of this article, I’ve collected ten tips to help you streamline and organise your taxes from your end, and in the second half, we look at some of the things you should consider when choosing your accountant. Let’s set out!
Tax Tip 1: Rely on the Professionals
Recently, I was talking to some fellow writers at an event, and one of them was asking for help with his taxes. He’d earned around $60k over the previous year from his books and had no idea that the royalties he was paid didn’t have tax already deducted. Now he owed Inland Revenue some $15k that he simply didn’t have.
I told him to stop asking other writers and talk to an accountant immediately.
Everyone has an opinion or advice about taxes, but not all of it is correct.
And one thing you really, really don’t want to get wrong is how much you owe the government, because they have a tendency to come collecting.
When I ran my own company, I read a couple of books and taught myself how to do my own taxes. It was easy, until it wasn’t. Two years ago I hired an accountant, and I will never go back to doing my own. There’s so much less pressure on me to get things right, and he knows all sorts of deductions I haven’t even thought of. Bless the accountants!
Tax Tip 2: Ditch the Shoebox
Do you keep your receipts, invoices, purchase orders, and other accounting ephemera in a shoebox or some other container?
My accountant tells me horror stories about the number of shoeboxes he receives from his clients before tax time. “Sometimes I think I should go into the shoe business,” he says, shaking his head. “My office certainly looks the part!”
Business owners often learn tricks off their predecessors, parents, or mentors. And ten years ago, it was standard to toss all your receipts into a shoebox or file cabinet and leave them for your accountant to sort out. But times they have changed, and you should be changing with them.
Instead of pulling the shoebox out every year, have a chat to your accountants about a more efficient system. You’ll probably be able to find a snazzy app or piece of software that will easily connect to your time billing software or accounting system and save you time and effort.
Hell, if your accountant isn’t spending time sorting through all your receipts, you’ll probably save money, too.
I fully admit that this is a case of “do as I say, not as I do,” as I am fully guilty of giving my accountant a shoebox of receipts every year. (And it gets worse – I actually make him give me back the shoebox so I can use it the following year).
Tax Tip 3: Chase Up Unpaid Invoices
With the end of financial year coming around, it’s a good time to tie up loose ends. And for any small business, the most common accounting loose end is unpaid invoices. It’s time to chase up all those clients who haven’t paid up and get them to pony up the cash.
One of the easiest ways to do that is to adopt an online, cloud-based invoice management system. Bonus points if you can integrate this system with your accounting and time billing software. Instead of scrambling through your files trying to match what hasn’t been paid, you can simply run a report and a list will pop up instantly.
WorkflowMax is a great option because it offers everything you need for managing projects in one comprehensive time-billing software package. It integrates seamlessly with Xero and other accounting programs.
To discourage late-paying clients before they become a problem, consider adopting a late-payment penalty. Check out this article for more tips on getting paid faster.
Tax Tip 4: Deduct All The Things
Deductions are my favourite thing. I see them as a challenge throughout the year, looking for all the things I can possibly deduct. Office expenses, business lunches, petrol, professional fees. After all...why pay more tax than you need to?
I know I’d rather keep that money for travel or new clothes. So don’t throw out any of those receipts – keep everything that might possibly be a business expense. You may think it’s pointless to worry about buying a package of stamps at the post office, but two dollars here and there can really start to add up.
If you aren’t sure what you’re able to deduct, then talk to that handy accountant you hired using the tips in this article, and they’ll be able to help you figure out if you’re missing something.
Tax Tip 5: Consider a Different Company Structure
Are you a sole proprietor? A partnership? An S-Corp? A Limited Company? What do all these things even mean? If you don’t know, it’s time you found out.
Company structure is important for small businesses as they grow. With new members of your team and different tax needs each year, you may find that another company structure will give you better breaks or the flexibility you need. Having the correct structure in place can also save your business a ton of headaches if you’re threatened with legal action.
In most countries, you can set up your own company structure however you prefer it. But having an accountant’s help can be vital.
Tax Tip 6: Don’t Hide Anything from Your Accountant
Your accountant can only do their job if you give them everything they need, when they tell you they need it. If you delay him, you risk delaying filing, which can come with delightful fines that you’ll then be liable for.
So don’t neglect any documents your accountant has asked for. Get your accountant to send you a checklist of documents and items for you to complete by the deadline. If you’re not sure if something is applicable to your business, just ask!
Always be honest with your accountant about your business, even if you feel embarassed or worried about something. Your accountant can help you figure out a way to fix a thorny problem, but only if he/she knows about the problem in the first place.
Tax Tip 7: There’s an App for That
Even with an online accounting and invoice management system, there can be holes in the process that can slow you down. For example, many companies still have to process receipts manually, adding time for organising and collecting these. And it's inevitable that many receipts will get lost – that’s money you’re throwing away.
But, thankfully, there’s an app to fix practically any business or accounting issue. For example, Receipt Bank is an amazing app designed to help you manage all those pesky receipts you usually shove in the shoebox (which you’ve got rid of in Tax Tip Two). With the Receipt Bank app on your phone, you can just photograph receipts as you get them and attach the images to the corresponding files on your computer. Easy!
Another way apps can be useful is by streamlining your entire accounting process. The WorkflowMax iOS app incorporates all the features of the time billing software, so you can track your time on the road. You can also issue invoices and push the data directly to Xero or another accounting program. Tax time has never been this simple.
Tax Tip 8: Look Who’s Calling
Itemising and deducting phone expenses is one of the more difficult deductions to calculate, as most people will use the same mobile phone for business and personal use.
Unless you want to carry around two phones (my husband does this, I don’t recommend it!), you need to come up with a workable system. Many accountants advise their clients to take three months of the year and itemise their bills to come up with a percentage of business vs personal use. Then you can use this number to estimate the rest of the year.
Talk to your accountant about a simplified way to measure phone expenses.
Tax Tip 9: Schedule It In
Do you find yourself struggling to remember which events corresponded to which receipts? This handy tip will help you keep your business dates and meetings straight when it comes time to do your taxes.
If you use an online calendar or scheduling app, create a system to filter out personal appointments so you can just see business meetings and events over the year. This makes life so much easier when you’re trying to match up expenses with meetings. If you want to get fancy, you can even colour-code events to separate out inter-office events, international / domestic travel, or client lunches.
Tax Tip 10: Treat Deadlines Like James Bond Missions
Imagine this, you’re in a bar, drinking your martini (shaken, not stirred), when you get the call. There’s a bomb in the casino, under the blackjack tables. It’s set to detonate in 22 minutes. Do you, a) immediately fly into action or b) finish your drink and chitchat with the bartender, because you’ve got plenty of time?
The answer should be obvious, but you’d be surprised how many people still dither when they have a huge, important deadline looming. The same sense of urgency should apply to your tax deadlines. Think of them as a ticking bomb under your seat.
Put the deadlines in your calendar, underlined three times. Give them three alerts. Tell everyone in the office to remind you to get them done in time.
Just like you don’t want to mess with crazy Bond villains, you also don’t want to mess with the IRD’s deadlines.
Choosing Your Accountant:
So now you’ve got all your tax stuff sorted on your end, and things are running much smoother, it’s time to ensure you have the right professional fellow at your side.
So how do you choose your accountant? Well, I’ve compiled these simple tips:
- Ask for referrals – talk to other business owners you know and ask for their recommendations. This is how I found my accountant. I found it a really useful exercise to talk to a range of different business and personality types to learn about their needs, as every person requires something different from their accountant.
- Check their credentials – accountants need to have completed specific qualifications in order to practice. These qualifications and what they’ll enable a person to do will differ depending on the country you live in, so check before you start researching accountants.
In countries like Australia and New Zealand the word “accountant” isn’t regulated - this means anyone could set up shop and call themselves an accountant, even me! (And trust me, you don’t want me anywhere near your accounts). You want to ensure the person you’re hiring is professionally trained and is part of a national body.
Also, are they Xero certified?
- Check their tech - Which accounting and invoice management software does your accountant support? Are you willing to change your current system if they can show you something better?
- What kind of support do they offer? I chose my accountant mainly because he’s happy for me to email him anytime with any questions I think are really silly. How long you’ve been in business and your familiarity with the books will determine whether you need a lot of support from your accounting firm.
- Do you want reporting and analysis? Unless you’re a hobby business, you want your accountant to do more than just ensure you meet your tax obligations. Your accountant can report on your cashflow, analyse your year-on-year growth and offer succession planning or other financial services. These analytical insights are invaluable for a growing company!
- Are you comfortable around them? - An accountant friend of mine once said, “you want the accountant who will give you the best advice, not the easiest.” This level of honesty comes much easier when accountant and client have a solid relationship. How do you feel around the person? Do you trust them? Do you find them easy to talk to?
- Check out other clients. Any accountant doing decent work will be happy to provide you with the name of a current client who you can chat to about their services. This helps to get an idea of how the accountant works, whether they’re helping support a company while it grows, and whether they’ll fit well in your own business processes.
And there you have it! Armed with this guide, and your newfound awesome accountant, you’ll be ready for whatever tax season throws at you!