If you’re like many busy parents and small business owners, the last thing on your “to-do” list is organizing your company’s financial information. With little time and many more productive tasks on your plate, your financial data keeps getting moved to the bottom of the pile, month after month. Then it’s time to take out a loan for expansion or look at your 5-year growth stats or file your tax returns – and you face a mountain of unreconciled bank transactions or data files to deal with.
Here are three tips to help you address this challenge:
Tip #1: Use electronic bank records to short-cut your data entry challenge
Start by getting access to your electronic bank records. ALL financial history is recorded in your files and would be the starting point for all accountants and bookkeepers, if you hired someone else to do the work.
Tip #2: If you put business expenses on personal bank or credit cards (or vice versa), you need to plan a strategy to split them out and categorize them.
You have two basic options:
- download your banking transactions and sort them, transaction by transaction, which could take weeks
- hire a small business bookkeeper or virtual financial data services company, such as unravel --that specializes in this type of scenario.
Once all business expenses are identified, you must categorize them. Again, you can decide whether you want to do this tedious work yourself, hire a small business bookkeeper, or use one of the virtual financial data services companies. The first two options are time-consuming and relatively costly compared to the latter option. Not only will you save time but money, as well. Look at it like this, if you are making over $20/hour as an entrepreneur, you are losing money paying a traditional bookkeeper $20/hour to do this.
Tip #3: Get right with the Internal Revenue Service (IRS.)
The longer you wait, the more you may owe. If you haven’t filed a tax return for several years, haven’t made estimated tax payments, or filed extension forms – you have a lot of work to do. You may think you don’t owe any taxes, because you haven’t generated profits in past years. That may be true, but it’s important to make sure that’s the case and fill out and file previous-year tax returns. If you continue to put it off, the IRS may contact you and request information about taxes due. You do not want to be in this situation, without having accomplished the above steps.
If you can’t make a current deadline, do these two things immediately:
- Make estimated tax payments, if you anticipate making a profit and owing taxes.
- File an extension.
The IRS imposes TWO penalties for late filers:
Failure to pay: If you don’t have the cash to pay your taxes when you file, you should try other options to pay, such as getting a loan or paying by credit card. The IRS will work with you to help you resolve your tax debt. Most people can set up a payment plan with the IRS using the Online Payment Agreement tool on IRS.gov. The failure-to-pay penalty is generally 0.5 percent per month of your unpaid taxes. It applies for each month or part of a month your taxes remain unpaid and starts accruing the day after taxes are due. It can build up to as much as 25 percent of your unpaid taxes.
Failure to file: Fortunately, the failure-to-file penalty (which may be easily remedied) is usually much more than the failure-to-pay penalty. In most cases, it’s 10 times more. So, if you can’t pay what you owe by the due date, file your tax return on time and pay as much as you can. The failure-to-file penalty is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. It will not exceed 25 percent of your unpaid taxes.
Once you’ve addressed all your current financial data and tax filing needs, take a moment to decide how you want to manage financial, tax information, and deadlines going forward. As George Burrell, Partner at unravel (a virtual financial data services company) stated recently, “Our small business clients sleep better at night because we’ve ‘got their back’ on organizing their financial and tax data using cloud-based technology and keeping up with all their tax deadlines and filings.” When you evaluate the impact of using this type of outsourced approach, think about its benefits for you: lower stress, less cost, efficiency, accuracy and higher productivity. And that’s just the impact it will have on your tax filing challenges.