Tax season is a challenging time for entrepreneurs, especially ones who are going through it for the first time. The volatility of the last two tax seasons has left new and existing business owners uncertain about how to navigate changing laws and policies.
To share insights for new and small businesses on navigating this tax season, CO— dedicated a special edition of our Start. Run. Grow. event series to the subject.
Jeanette Mulvey, editor-in-chief of CO—, sat down with accounting experts to talk about how small businesses can make sense of the complicated tax landscape and find the best practices for successful bookkeeping.
[Read more: 10 Tax Deductions Your Business Should Know About]
Start: Have an accountant from the very beginning
To save money, many first-time entrepreneurs do their own bookkeeping. While they may be able to manage the responsibilities by themselves, as they grow and hire employees, the task can become more daunting and complex.
Manny Cosme, president and CEO of CFO Services Group, recommends new business owners use tax season as an opportunity to start a relationship with a professional accountant, no matter how small their business is.
“It's going to cost you hardly anything [if] you're really tiny … but we're seeing you start from the very beginning,” said Cosme. “That is so important because hopefully you are going to be growing…fast, and we can grow right along with you.”
In addition to helping your business grow, an accounting professional can run your payroll for you. If you’re starting out with a handful of contractors, payroll may be straightforward. But as you hire new employees and have to contend with payroll taxes, it can quickly become complicated.
“Not only does [payroll] touch on tax law, but it touches on employment law as well,” said Cosme. “It's sort of the perfect storm where a lot of things can get really screwy really fast.”
Between regulatory issues and registering in different states, payroll can have ripple effects throughout your entire organization, so it's best to handle it professionally.
It's going to cost you hardly anything [if] you're really tiny … but we're seeing you start from the very beginning. That is so important because hopefully you are going to be growing…fast, and we can grow right along with you.
Manny Cosme, president and CEO, CFO Services Group
Run: Find the right bookkeeper for your business and industry
“Accountant” is an umbrella term for people who do accounting-related work, so when you’re looking for one to help your company, it’s important to understand your business needs and what specific type of financial services you’re looking for. This could vary from CFO work to tax preparation to audit assistance.
One role that most small businesses end up needing is a bookkeeper — the person who keeps the day-to-day financial records of your business up to date. While there are many good bookkeepers out there, what matters is finding the right one for your business. The person you hire should understand your industry, as well as the financial needs of an organization of your size.
As the founder and CEO of Little Fish Accounting, Keila Hill-Trawick gives her firm’s clients year-round attention via email and scheduled phone calls. She recommended that small businesses should choose a firm that communicates with them through their preferred method and frequency.
“Just [make] sure that you're getting a person [who] works with you in the ways that you need to be worked with,” Hill-Trawick said. “It's not a good or bad thing, but you don't want to sign up [to work with] … somebody who never talks to you on the phone, if that's what you need all the time, or somebody who requires that you get on the phone when you'd rather work through email.”
[Read more: 5 Common Bookkeeping Mistakes New Business Owners Often Make]
Grow: Keep your financial records
Small business owners need to make sure they're keeping detailed financial records on a regular basis. If you're hiring a tax professional to file your taxes, they aren't necessarily scrutinizing the accuracy of your books. Providing your tax preparer with accurate records ensures that your business doesn’t over- or underpay on its taxes.
When it comes to storing financial records, businesses can opt for local, digital or a combination of both. As industries move more towards being digital, though, businesses should invest in cloud storage to back up their digital records.
No matter how your records are stored, small business owners need to know their requirements for keeping them. Chris Whitaker, principal at Iron Mountain, noted that every industry and state has different requirements for how long businesses need to keep certain records.
“If your [business] operates in multiple states, the record-keeping requirements might be different based on the jurisdiction,” Whitaker said.
Once you know your business’s specific requirements, you may wish to formalize a retention policy for your documents, including what to keep and when it’s safe to dispose of older records.
“If you do build a retention policy or retention plan … actually act upon it,” said Whitaker. “For those records that you really, truly can dispose of, your policy sets forth that you're able to do that. And it's a good best practice to … go ahead and do that.”
Learn more about navigating tax season in CO–’s guide for small businesses.
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
Follow us on Instagram for more expert tips & business owners’ stories.
