Zahir Khoja, CEO of Wave.
For many small and microbusiness owners, tax season is the most dreaded part of the year. On top of serving as everything from CEO to sales associate, they must now also try to remember as much of their “Accounting 101” classes as possible—all under the threat of a potential audit.
The reality is that many business owners don’t have the knowledge or time required to feel fully on top of their taxes. And it’s why so many outsource their filings. Working with qualified experts is important, but it can still be stressful if your books are not in order. Being ready for tax season means preparing year-round, not just when key deadlines are around the corner.
Part of the challenge is that many small businesses are still hesitant to invest in technology that can help with the process. For example, 77% of Americans use digital solutions to help manage their finances, according to a study by the American Bankers Association. Meanwhile, 35% of small-business owners would consider using fintech systems, per a separate study by McKinsey in 2022.
Every year, annual deadlines seem to sneak up on some owners who are laser-focused on their craft. And in the rush to get their taxes in, small and microbusinesses could miss out on potentially major tax savings, money that can be reinvested in the company to fuel growth, expand operations, save for the future or treat employees to a reward for their hard work.
Here’s how entrepreneurs can maximize their efforts while reducing anxiety:
1. Be open to (digital) change.
Many small and microbusiness owners wait until the last minute to do their taxes. Investing in a digital platform that helps you stay on top of the company’s finances all year round can often produce better results than simply Googling “tax help” a few weeks before the deadline and clicking on the first link. (Disclosure: My company provides a platform like this, as do others.) With all the right information housed in a single, digital location, owners can work more seamlessly with their tax partner of choice to get the most accurate filing in—even under tight deadlines.
To accomplish this, business owners should seek out financial technology that integrates easily into the other systems their businesses already rely on. They should also make sure to read reviews from similar types of business owners and research the product features offered to make sure they are selecting a partner that will best suit their needs.
Leaders may face some common challenges when getting started with digital platforms:
• Many small-business owners save receipts in a shoe box or folder, and making the switch to a digital platform can be daunting at first. Sometimes, it is helpful to plan ahead and start during a slower time of year for your business.
• When you’re just getting started with digital platforms, it can take some time to get into a routine of updating your books. Block some dedicated time in your calendar, whether monthly or quarterly, to check in on your books and make sure everything is on track for next tax season.
2. Use automation to your advantage.
Of course, it’s critical that owners properly classify transactions. But the days of putting every receipt in the “shoe box of shame” and then manually reviewing each of them during tax season are over. By following some best practices on your digital platforms, you can unify and organize your expenses in real time.
Begin to take stock of your expenses throughout the year, aiming to ultimately maximize deductions. For example, many platforms can automatically categorize purchases. And taking advantage of automatic payroll tax payments can help business owners with employees stay on top of their payment obligations throughout the year.
3. Remember, it’s business—not personal.
Keep business finances distinct from personal. This helps alleviate the annoying and time-consuming task of separating them ahead of tax season. Additionally, having a business bank account and credit card can potentially offer lucrative rewards, both at sign-up and throughout the year. With interest rates going down, it may be a good time to start to build credit for some businesses.
Then, connect those accounts to any underlying technology platforms for tracking, categorizing and auditing.
4. Know your deductions.
Owners should be clear-eyed about the potential tax savings they are owed. Worked in a cafe? That could be a potential write-off. Had to drive two hours to a work meeting? That could be another potential write-off. But it’s not just about overlooking key tax-saving opportunities. It’s also about figuring out ways to add additional, qualified business write-offs to decrease their tax bills.
This is where knowledge of the available deductions becomes so critical. Today, many underlying tax platforms have this information built in and can help owners identify potential write-offs they may not be aware of.
But deductions can be incredibly personal. And often, one of the easiest ways to know if something counts is just to ask an expert.
There are so many opportunities throughout the year to reduce the agony of the annual filing process. With the right preparation and the right support, owners can start to build their filing throughout the year. It’s how smart entrepreneurs keep their stress and tax bills low, and their focus on growing the business.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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