A Small Business Owner’s Guide to Navigating Tax Season

For many small business owners, managing taxes can be an ongoing and daunting challenge requiring a good organizational system and a lot of company resources. Even the most organized entrepreneurs may face a difficult time as they discover just how much a business’s taxes entail. 

During the inaugural installment of CO—Strategy Studio, tax professionals discussed the best course of action for navigating this year’s tax season. Experts reviewed smart bookkeeping practices, overlooked tax credits for small businesses, and more to help entrepreneurs handle the 2023 tax season with ease.

Create a Bookkeeping System to Stay on Top of Your Income and Tax Viability

As a small business owner, Al-Nesha Jones, founder of ASE Group, believes that the best thing you can do for your business — and to be prepared for tax time — is to stay on top of your bookkeeping. 

“All seasons are tax season,” Jones explained. “Bookkeeping is not a pre-tax prep process; [it’s] a regular process for tax planning for growing a strong and sustainable business. Speak to your accountant and/or bookkeeper regularly… [and] use your accountant as your strategic partner so that they can help you — [but], that can only happen if you have good books and records for them to review on a regular basis.”

With good bookkeeping comes good record-keeping, which requires putting a strategic system in place where you can keep track of all your business's transactions and receipts. 

“The standard practice is seven years to keep documents  — the best way to do that is to back your records up to the cloud,” Joy Shaw, Director of Tax for Intuit, said. “Make sure you have those tracking mechanisms in place, so it's done on a regular basis. Update your more permanent documents, loans, operating agreements, [and] shareholder agreements, and keep those in a safe and secure place that's offsite for wherever you may be working, and have it always backed up.”

Don’t Wait for Tax Season to Begin Making Tax Payments

Small business owners may put off making tax payments, such as estimated taxes. However, according to Jones, those who put off making timely tax payments waste business resources paying off penalties and interest on the underpayment amount.

“Strong, sustainable businesses do not waste money on interest and penalties,” Jones said.

To ensure your payments are made on time, Shaw recommends a threefold process. 

“[First], simplify your records. If you have multiple accounts, consolidate,” Shaw said. “[Next], automate payments [and] receipts that will simplify your recording. [Finally, use] integrated systems so that payment, bill paying, invoicing, booking transactions, payroll, sales, [and] tax benefits can all be integrated to combine into reports that can then help during tax time.”

Small Business Owners Should Look Out for New Tax Code Developments 

New developments and changes are often made to tax codes. If a small business owner stays on top of these changes, they can find useful deductions that help them grow at a quicker rate.

“The government offer[s] a credit for adopting a new 401(k) plan, and/or offering automatic enrollment,” Jones explained. “If this is something you're doing to retain employees [or] attract quality talent, there's also a tax credit out there for you. This credit could be up to $5,500 a year, and you can claim it for up to three years.”

Other deductions include the mileage deduction, as well as small business credits for research activities, providing employees with healthcare coverage, using commercial clean vehicles, and energy credits (for contractors). However, Shaw warns that if you are planning to take advantage of these or other deductions, plan accordingly with the timing of your purchases.

“What's most often overlooked is the timing of your expenditures,” Shaw said. “It depends on when you put your purchases in place, how much you can write off from those more capitalized assets. If you are purchasing most of your things in the last quarter of the year, for example, you're very limited on what you can take as a deduction.”