Another year’s tax preparation has come and gone….hopefully you were not up until 11:00 Sunday night the 17th staring at a blank 1040 form with a stack of receipts or schedules beside you moaning, “Why do I do this every year?!”
Taxes and tax preparation can be painful… but like anything else in life, spending a little time preparing prior to the tax deadline helps immensely. Here are three ways to better prepare yourself in 2011:
First, organize any and all of your receipts over the current year in ONE SPECIFIC BINDER OR OTHER ORGANIZATION TOOL! Writing small details on lunch receipts with clients, including details in the memo field of a business checking transaction, or simply keeping a mileage book to keep track of mileage over the course of the year is a small investment of time each day. However, it saves you long hours at tax time remembering how some of your transactions need to be classified and making sure that expenses which may be deductible aren’t missed. Then, add any 1099 forms or W-2′s received in January of 2012 to your 2011 binder and you’re all set for tax prep. Whether you do your own taxes or pay to have someone do them for you, you’ll save time and be in a better position to take advantage of deductions offered when your business and personal information is in good order.
Next, if you itemize deductions, plan your level of cash/non-cash donations ahead of time to give yourself a tax advantage. Donating to your favorite charity or church warms your heart; it also can help reduce the amount of taxation you have to pay in a given year. It’s best to speak with a tax planning specialist or financial consultant ahead of time if you plan to donate more than $5,000 in total to be sure you’re tracking appropriately to take advantage of any deductions. We can give you an idea of what organizations fit within the 50%, 30%, or 20% rules and how they apply to donations.
Finally, make yourself a line item in your budget that simply goes toward paying taxes. Whether you are filing for yourself or your business, budget an approximate amount that you will owe in taxes in 2011 going forward. For instance, if in the prior two years you owed $4,800 in taxes and you remain in the same approximate financial shape, better to budget $400/month in your safe spot (whether it is in marketable securities or in a simple savings account) than try to come up with the $4,800 in the middle of April 2012.
Remember, taxes and tax preparation are a part of life; fine tuning your organizational skills, timely planning, and budgeting are three factors that can help you and your small business, be better prepared in 2011. Contact us if you need help getting started. Need to figure out other ways to get your small business on the right financial track? We can help!