5 Action Items You Can Do Today to Prepare for Tax Season

By Cameron McCool

Tax time, often a source of stress for small business owners, will be here sooner than you think. To help make filing your next business return as easy as possible and to ensure you get the highest possible return, we've put together a list of five actionable things you can do -- starting now -- to prepare your business for tax time.

1. Get organized; stay organized.

So many business owners get to the end of the tax year and face a pile of receipts and disorganized finances that can only be described as, well, hell. Here are some simple tricks and processes to help you keep your business records organized throughout the year:

• Don’t commingle finances. Do your best to pay all business expenses with your business credit or debit card. Having to locate and separate business expenses from your personal business account creates extra headaches come tax time.
• Stay on top of receipts. Whenever you make a business purchase, write the purpose of the purchase on the back of the receipt and keep track of how it served your business. You can also automate the process of filing your receipts by using services such as Evernote, Shoeboxed or Doc Scan Pro that will scan and upload receipts automatically to an online folder that can be accessed by others. Sharing receipts with your bookkeeper and/or accountant becomes as easy as emailing them a link to view your online folder.
• Document employee reimbursements. If you have employees, you may have made expense reimbursements over the year. You’ll need to collect the receipts and create a report that documents those reimbursements. While the IRS requires you to substantiate any expense over $75, we recommend that you hold onto receipts for all business purchases, just to be on the safe side.

2. Got employees? Make sure you fill out these forms

Working with employees and independent contractors comes with additional tax responsibilities. If you have employees, you’ll need to file an Annual Federal Unemployment Tax Return form (Form 940) and an Annual Return of Withheld Federal Income Tax form (Form 945). You'll also need to file an Employer's Federal Tax Return on a quarterly or annual basis (Form 941 or Form 944).

If you paid any single independent contractor more than $600, you will need to give them a Form 1099. The deadline to submit these to your contractors is January 31, so read up on the difference between employees and independent contractors to be sure you’re submitting the right paperwork.

If you don’t already have W-9 forms on file for contractors, get them filled out now. The W-9 is a request for the worker’s taxpayer identification number. You should already have it on file for your employees (it’s necessary for payroll purposes throughout the year), but if you don’t, get one from the employee right away.

If you hired any foreign independent contractors, they will need to fill out a W-8 form, of which there are four different types. To confirm which type of form your employees will need to submit, it’s best to speak to an accountant or your payroll provider.

3. Deductibles: Determine personal vs. business use

Some deductible costs such as your home office, your vehicle, or your cell phone can be used both for business and for personal reasons. These costs are deductible based on the percentage you use the item for business.

For instance, if you only have one cell phone and it gets used for business and personal calls, you can only deduct the percentage that it’s used for business.

Calculate what portion of deductible items you'll be claiming as business related and make sure you have some evidence to back it up in case you are ever audited by the IRS. For example, you can keep a mileage log book or highlight business calls on your phone bill to show how these deductibles were used for business purposes.

Calculating the percentage of your personal and business usage ahead of time will simplify the process when you submit the information to your CPA. Also, if you manage this part of the process yourself, you’ll also save on having to pay your accountant additional fees to do it for you.

More articles from AllBusiness.com:

• Checklist of 27 Tax Deductions for Small Businesses
• How to Choose and Set Up a Bookkeeping Software System for Your Small Business
• Why Every Small Business Needs an Accountant
• The Entrepreneur’s Guide to Legal Entity Identifier (LEI) Numbers
• How to Make Your Accountant Love You—And Get Bigger Tax Returns to Boot

4. Get your books in order

Whether you choose to self-manage your business bookkeeping, hire a bookkeeper, or use an online bookkeeping service to handle your business’s books for you, if you have a backlog of business bookkeeping, the best time to get your books in order is right now. In addition to saving you a lot of time when preparing your tax return, up-to-date books are much easier for an accountant to work with, meaning you’ll spend less on accountant fees. Accurate bookkeeping is also a requirement by both federal and local tax agencies, as your business’s books will be examined if you’re ever audited.

5. Find a CPA

If you aren’t currently working with an accountant, start looking for one now. Ask your banker, attorney, or business colleagues for referrals, and then interview candidates to find out whether or not they'd be a good fit for your business. This process can -- and should -- take time. An accountant who specializes in meeting the unique requirements of your business will provide accuracy and ensure that you don’t miss out on any tax savings. They can also provide tax planning advice throughout the year.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

RELATED: How an Accountant Can Save Your Business Money at Tax Time—And All Year Long