Don’t let anybody fool you. Taxes are the most complicated part of running your own business. Even if your business is just you, making sure that you track and claim everything correctly is an intimidating and complicated process. This would be true even if tax laws stayed basically the same…which, of course, they don’t.
Tax laws change all the time and at a bunch of different levels! According to ADP, there are 47 new rules every day. How the heck are you supposed to keep track of it all? One option is to utilize ADP employment tax & compliance services, which help simplify employment tax compliance and minimize risk for in-house payroll.
Many business owners and entrepreneurs hire accountants to do all of their tax work for them. When your business is small, it is simply easier to pack up all of your receipts and records, hand them over to your accountant and let them do all of the work. When you expand, however, and you have employees, multiple vendors and sales funnels, it is better to hire someone to work on your taxes in-house.
When you first start out, you can probably track your income/expenses and tax responsibilities using a simple spreadsheet. As you expand, however, you will want to automate as much of that process as possible to reduce the chances of human error messing up your system.
Start by investing in some good invoicing and billing software. This will streamline the process of tracking who owes you money and how much they owe. Look for software that will help you send second notices and reminders quickly and that will alert you if someone hasn’t paid after a specific amount of time so that you can follow up with them personally.
When you hire employees, you’ll also want to invest in solid payroll software. Look for programs that will check for payroll tax updates regularly and automatically so that you don’t have to worry about missing one of those 47 daily changes we mentioned earlier.
Finally, you’ll want solid accounting software that can integrate with your invoicing and payroll programs. The accounting software should be able to compile the data from those programs with your expense reporting and do all of the math for you so that, come tax time, all you have to do is write a check. If your business has grown past 10 employees, however, you’ll also want an in-house accountant to take over all of these responsibilities and software management for you.
Software is a great way to keep up with the minute changes that can happen from day to day, but there are some regulations that cannot be managed by software. For example, there are rules that dictate how long a business must hold on to physical records and how long those physical records must be kept on site.
These regulations must be kept up with manually. Often the IRS will send out notices and reminders about regulation changes, but don’t depend on those mailed form letters. Instead, get into the habit of checking up with the IRS on your own. One way to do this is to set up Google Alerts so that you’ll be emailed whenever changes to existing regulations or new rules are announced and covered by the news.
Another good habit to get into is checking for new information every time you pay your estimated tax payments (or having your accountant do this). Because you have to make those payments quarterly, you should be able to keep up to date on long-term changes pretty easily.
Finally, meet with your accountant (in-house or outsourced) regularly so that you know what is happening with your own money and what tax issues apply to your business. It is important for every business owner to know exactly what is happening with the company’s money so that if you notice something is changing, you will understand how it will apply to you (or not).
Nobody is going to deny that taxes are complicated and time consuming. Using software and habitually tracking changes is the best way to reduce your chances of getting audited. Use the tips we’ve listed here to help do that.