Taxes

Tax Season Is Over. What Should You Do Next?

May 12, 2022

Journey's expertise is payroll and HR. We can refer you to a trusted bookkeeper and accountants for help!

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Hopefully the end of tax season allowed you to let out a giant sigh of relief. But for many, it left us wondering what we can do in the upcoming year to ensure next tax season is less stressful. For small business owners, it can seem overwhelming to figure out which records and receipts you need to hold on to. Not only is it important to keep the right type of records, but the method you use to keep them can make or break your tax season experience.

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According to the IRS, basic record keeping must, at least, include proof of your gross income, deductions and credits. Many businesses will also need to keep track of expenses, assets, and employment taxes. This may sound easy in theory, but for most businesses it ends up being a lot to hold onto over the course of the year. Within each category, meticulous record-keeping is a must. Visit the IRS website for a comprehensive list of types of documents to save. Here are the IRS definitions for each category:

Gross receipts – the income you receive from your business. You should keep supporting documents that show the amounts and sources of your gross receipts.

Purchases – the items you buy and resell to customers. This includes any materials necessary for creating a product to sell. 

Expenses – the costs you incur (other than purchases) to carry on your business.

Assets – the property, such as machinery and furniture, that you own and use in your business.

old fashioned green filing box with a key sticking out of it

One option for keeping everything organized is to be a world class filer who has paper copies of everything. If you can do this successfully, more power to you. Although, it is important to keep in mind that a disaster like a flood or fire can leave you in a dire situation if you don’t have electronic copies of your records. As a notoriously bad filer, I have spent a great deal of time researching other options for you. The advancements of technology in these areas make life so much easier than it used to be! Gone are the days when you needed to buy a scanner or a fancy printer to make electronic copies of your documents. These days there are countless (and very affordable) apps that take perfect scans from anywhere. The right one for your needs is just a quick internet search away!

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If you don’t have many documents to keep track of, keeping an electronic backup of everything with a simple scanning app it is a great way to make sure you’re not scrambling to find pieces of paper during tax season. But for some, that may not be enough. You might want to be on the lookout for a more complex software that employs optical character recognition technology or OCR. I know, it sounds so fancy. But put simply, it means that when you scan your document in, it recognizes the words. This means that when you are looking for a specific record, you can search it by a keyword or date. This could be a total game changer for the small business record keeping process.

The Balance Small Business has a great article about some crucial parts of record keeping for the small business.

Here are three important pieces of advice, from the article, that you may not have thought of to help your business have a successful tax season:

credit card processing machine on orange background

1. The best way to make business expense payments

Cash and check transactions can be chaotic and difficult to keep organized. Whenever possible make electronic payments. These will be so much easier to track and revisit. It is important to note that just because you have a proof of payment does not mean you are entitled to a tax deduction. Make sure you are also holding onto invoices in order to justify your deduction claims. 

2. How long to hold onto records and receipts

The IRS has lots of different rules for how long to hold onto various types of documentation. Their PDF on starting a business and record keeping vaguely states that things need to be kept “as long as they are material to the administration of tax law”. The general practice, to err on the side of caution, is to keep any relevant records for seven years. This is traditionally how long financial institutions hold onto their records and it is a good safety net in case of any audits or tax issues.

3. Make sure employee payroll deductions are done correctly

While it is possible to handle payroll on your own, employee taxes are a very complicated and crucial part of any small business. If you choose to outsource your payroll needs, you should be able to count on the payroll company to keep track of any documents you need when it comes to employment taxes. This will be a massive burden off the shoulders of the business, as it removes your liability and allow you to sleep easy knowing that your employees tax needs are being handled correctly. This will make tax season for both your business and your employees a much smoother process.

A man using a calculator

Doing a bit of preliminary research can help you decide which things you want to tackle yourselves and which things you want to outsource. While it is tempting to save some money and handle everything yourself, a mistake can be costly. Consider investing in professionals to help make sure things are done correctly. Whether you are a small business with one employee or a multi-national corporation, tax season comes for us all. Being prepared and organized in your record keeping throughout the course of the year can allow you to focus your attention on your business and not leave you scrambling and stressing.

Journey can do the heavy lifting when it comes to payroll taxes. Learn how we can help! No matter who you use for payroll make sure your service provider is fully insured. There are countless scary stories of bookkeep and payroll fraud. Always protect yourself.


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