For countries that require a personal tax return to be filed, tax season is an annual rite of passage that fills many with a sense of dread. You know it is coming, yet the looming filing deadline takes you by surprise every time! The implications of not paying your taxes on time and filing your return by the deadline can leave you with more than just stress. Penalties and interest for late payments and filing are extra expenses you just don’t need.
The good news is that you can easily avoid penalties and interest by doing a few things to prepare yourself. Here are 5 tips for busy entrepreneurs to help you achieve a stress-free tax season.
#1: Give yourself enough time
Filing late can cause you to lose sleep at night. Worrying about the penalties and interest with a missed deadline, and the potential for the risk of being audited, can paralyze most people. Confirm when your specific filing deadline is and give yourself enough time to prepare. If you’ve organised your documents throughout the year, you should only need one day to check what you have and haven’t received and to do follow ups and a second day to prepare your return or send it over to your tax professional. If you haven’t organised your documents throughout the year, it will take you extra time to gather everything before filing. In either case, remember tax professionals are often processing hundreds of tax returns each year, so getting your information to them the day before the deadline is not a good idea. It could be difficult for them to turn it around in time for filing or it could cost you more to have it prepared quicker.
#2: Delegate if necessary
Is your return getting more complicated and taking longer for you to calculate and file? Sometimes it is better to delegate more complex tasks that are outside of your area of expertise to an expert. Not only will it save you time, but it also may save you money.
If you plan to file on your own, you need to make sure you stay on top of all annual tax updates, which can be time-consuming in itself. And if accounting is not your area of expertise, you may miss things that could mean you owe more money.
Find a professional who has worked with other businesses in your industry. There are tax preparation companies, bookkeepers, and accountants who can prepare your return while meeting you at your level of need and budget. If you’re really not ready to hire someone to prepare your return, you can also explore different income tax software to make the process easier to manage.
#3: Ask questions
You may not realize that when you sign off on your tax return you are approving every detail in the return. So, even if you have delegated your tax preparation to a professional, you need to understand it. If you don’t understand certain things about your return, do further research online, speak to your country’s revenue agency, or ask for it to be explained if you have engaged a professional. If you do get audited, ignorance is not a defence, so seek help if needed.
An added bonus is that understanding the entries on your return will also help you to be better prepared next tax season.
#4: Get organised
Speaking of next tax season, it may be too late for this year, but organising yourself during the year has many benefits. Whether you prefer physical files or a cloud-based platform to house digital files, organising your records as they happen can save you a lot of time.
Whether physical or digital, to get started for next tax season, set up folders based on the types of income you received or expenses you incurred last year. Then add new folders for anything new that happens during the tax year. For example, you can have a folder for any medical expenses that were not reimbursed by your insurance provider or one for the interest income statements that you’ll receive. There is no right or wrong way of setting up your folders as long as you can find what you need when you need it. We always recommend having digital back up copies of any physical and digital documents in case the unexpected happens.
With your files set up for the year, set a calendar reminder for yourself to follow up for any tax slips or receipts that you are expecting if they have not been received within two months following the tax year end period. This avoids chasing customer services reps at the last minute and gives you enough time to request a duplicate copy if necessary.
#5: Think of it as an ongoing process
Once you have your folder system in place, document, and file during the year as things happen. Document all changes. For example, perhaps you decided to become an entrepreneur mid-way through the year after you were laid off from your last job. If there were any complexities associated and you had to engage a lawyer to negotiate with your employers, make a note of it in your tax prep folder as well as saving a copy of the invoice paid. This allows you to do further research or seek advice before filing your taxes to see whether it is an eligible expense for you. Not filing it may result in you forgetting it and missing out on the deductible. Managing the process throughout the year lets you focus on other things during tax season rather than stressing about what you may or may not have forgotten.
One thing that many entrepreneurs often overlook are any issues that arise during tax season as well as tax agency correspondence regarding past returns. It is best to plan ahead throughout the year to avoid any issues in the future. Simple things like updating your address with organizations that will be sending you a tax slip or making sure you have copies for all of the deductions that you are claiming in case of audit are easier to do in advance rather than dealing with issues that arise after the fact.
The framework above can also be applied to your business financials process to help you prepare for your fiscal year end reporting but if you need more guidance book a free consultation with us.