You want a healthy business where you can serve your clients well and have some freedom, but every year tax season comes along to deflate your momentum, increase anxiety and take all of your energy away from anything that matters in the business. Every. Year.
That is unless you are like some of the entrepreneurs we’ve met who have found a way to make it a simple, relaxing process with minimal involvement. The following is a step-by-step guide to making tax season a piece of cake every year. And doesn’t that sound tasty?
The Problem with Tax Season
Most of us are well aware of the pain and challenge of tax season. You may even be to the point where you have accepted it as just the way things are going to be – like part of the price of being an entrepreneur is to hate tax season. We prefer to have our cake and eat it too.
The tax season problem manifests itself in a variety of ways.
From a purely external perspective, tax season pain looks like this:
- It costs money for your CPA to clean it up
- It costs time to go back and dig and find information
- It can sometimes cost thousands of extra dollars because of poor strategic decisions
But there’s more. Sometimes we need to get our taxes filed to move things in our lives forward:
- You need a tax return to submit a FAFSA form for your daughter’s college
- You need it to submit documentation to get a home loan
- You need it to get your documents organized in order to get a business loan
And then at a deeper level, tax season causes in internal pain with even greater consequences
- It makes you question if you are overpaying
- It makes you have doubts about the financial health of the business
- It makes you feel inadequate when you have countless questions from your CPA and can’t always answer them
This is all awful – and so many business owners are just accepting it. Let’s talk about how to make it better. But first, we need to know why it’s so painful in the first place.
Why is Tax Season so Brutal?
The reason tax season is brutal for a large percentage of entrepreneurs comes down to a misconception that tax is something that happens once a year at a designated time.
Many entrepreneurs and law firms don’t prioritize their accounting throughout the year and wait until tax time to salvage it.
Because of that, you’ve never been in a system that works and therefore never had a handle on the day-to-day numbers.
What’s it Like When Tax Season is a Piece of Cake?
Since most who read this have just accepted that tax season will be painful no matter what, I want to describe the other side of making it simple and what that looks like.
When you make accounting a year-round project, this is what happens:
- You have a chart of accounts for your business to categorize every transaction.
- You track transactions in real-time and can produce financial reports on demand.
Then your tax season is literally just like any other month and requires a few clicks to produce the reports for your CPA to complete the tax return.
When this happens you have a new sense of confidence about your business and tax season is nothing to fear or worry about. Piece of cake!
So, the more important question now is – how do you get there?
4 Steps to a Piece of Cake Tax Season
1. Systems and Organization
The first step is getting into technology and tools that work and allow you to categorize transactions. For law firms, a great example is using Clio for practice management and then integrating with Xero for accounting.
Xero produces a balance sheet and profit and loss statement which form the primary basis of a tax return.
2. Stay with it All Year
Having systems is one component. Next is staying with it throughout the year and not letting things fall behind and waiting until the end of the year.
3. Remember Trust Accounting Best Practices
For attorneys, taxes can be a huge problem if you aren’t categorizing trust accounting properly. To be specific, if you are marking trust funds as income – which many bookkeepers will naturally do because it’s money going into your bank – then you are being taxed on income that’s not really yours! Read more in-depth on trust accounting best practices here.
4. Make it a Team Effort
Most importantly, this challenge of tax season points to the crucial role of a bookkeeper and a team that has your back. At Kahuna Accounting, our role is to take every transaction and roll it into financial reports that are incredibly easy for a tax preparer to deal with.
The transactions become our problem, not the clients’. With all the pain involved, why not get help to make this incredibly easy. When someone has your back, you can focus on your business and your tax season will never be painful again.
If you want to go deeper on these four points, I covered them in depth on this webinar with Clio. Check it out right here for free.
Or if you want to make sure next year and every year after are simple and painless for tax time, just click below to discover how our bookkeeping for lawyers and entrepreneurs can make tax time a breeze and help grow your business.