By: Brian Lang 06/09/2014
Let’s face facts, no one likes doing their taxes. It is time consuming and only costs money. However, it is an inevitable fact of life (after all, only death and taxes are guaranteed). Sooner or later whether it is due to a letter from the IRS or the need for financing from a bank or prospective investor, it will be todays fire that needs to be put out immediately. If you follow some simple steps, the process can be almost pain free.
If I had all the information that I need, unless there is something unusual about your business, I can probably prepare your taxes in a couple of hours. The key phrase is “the information that I need”. However, running your own business can complicate your tax preperations. It is rare to have all the information needed at your fingertips, whether it is expenses to enter and categorize or the square feet of your home office, there is usually a lot of follow up questions. This is why I stress it is far better to have lots of short conversations and emails than try to do everything in one meeting on April 14th.
Most startups have more expenses than revenue. This is natural for any business when it is starting. Ideally you need to keep an accurate record of your expenses. Of course, if you were already doing this, you wouldn’t be reading this article. Instead receipts are kept in a shoe box. Maybe if you are really advanced, a spreadsheet. Either way is far from ideal. The best solution I found for this is Expensify. (For full disclosure, I have no and have not had any relationship with them.) Their slogan is expense reports that don’t suck and they are right. Their app which is relatively cheap allows you to take a picture of your receipt with your smart phone and allows you to categorize it on the spot. At the end of the year, it generates a report with all your expenses and the receipts. This is any accountant’s dream and makes tax preparation so much more efficient.
Another equally appealing approach is to get another credit card which you only use for business. Any decent credit card will have a year-end summary that categorizes all your expenses.
Either approach should survive an audit from the IRS. Of course, just because you have the receipt doesn’t mean it should be included.
Brian Lang is enrolled to represent clients before the IRS and thus can help you with any of your tax needs, you can email him at email@example.com if you have any further questions.