Almost every accountant has a story about a small business client who showed up on April 10 or thereabouts, expecting to start work on a company or personal income tax return. Or, worse, a client who showed up with a shoebox full of receipts and invoices, also expecting to get a return done in short order.
There is no reason why business owners should have to be in that position — as long as they start getting their tax affairs in order now.
When a business owner's income tax season is perennially chaotic, chances are his or her books and overall company operations are as well. These owners often don't have a good sense of their cash flow, accounts receivables and profit or losses.
Mark Toolan, a certified public accountant in Exton, Pa., said the solution is easy: Buy accounting software and start inputting all your financial information, using bank statements or your check register. Look at your credit card statements and any receipts you have, too. You can still get this done for 2007, and you should be starting to do this now anyway for 2008.
There's more at stake than just having an easier time of it during tax season. "When we hear people say they're disorganized ... it often means they're paying more taxes than they should," Toolan said.
If the problem is that you haven't the time or the wherewithal to keep your finances straight, then you need to get help — something that many entrepreneurs, used to doing it all themselves, find hard to accept. But, keeping in mind Toolan's warning about overpaying taxes, what you spend on a part-time bookkeeper or on contracting with a bookkeeping service will probably save you money in the long run.
Moreover, it will eliminate some of the stress in your life — and not just your work life.
"Deal with it now, or you're going to have the aggravation" indefinitely, said Jeffrey Chazen, a tax partner at the accounting firm Eisner LLP in New York. He warned, "it leads to other pressures, not just financial" — in other words, your family life can suffer when your company is having problems.
Tax jitters
Accountants say that many times, small business owners put off organizing their tax papers because they're afraid they won't have the money to pay their taxes. But, Chazen noted, "it's always better to know in advance" what you're going to be dealing with in April — and if you get yourself organized now, you can start setting money aside to pay that bill.
Of course, the benefits of being organized will last well beyond April 15. Having a good accounting system allows companies to get a better handle on cash flow. Chazen pointed out that one reason why many owners are suddenly strapped for money to pay the government is because they spent willy-nilly during the holiday season and didn't know whether there would be more money available for Uncle Sam.
For the many owners who file their business tax returns using a Schedule C attached to their 1040 forms, not knowing where they stand in terms of company finances also means they don't have a complete handle on their personal finances as well, Chazen said. And that can have long-term ramifications, for example, on savings for retirement or children's college tuition _ if a business isn't turning a profit now, then an owner can be hard pressed to put money aside for the future.
But let's say you don't heed the advice, and there you are in early April, ledgers or shoebox in hand. Be prepared to hear your accountant say that he or she won't be compiling your return, but will instead be filing for an extension of the filing deadline.
"You can't do it that quickly without making any mistakes," Chazen said, warning also that presenting a tax preparer with a chaotic set of records is going to be more expensive: "When someone else is cleaning up your mess, it costs more."