Although it feels too soon to discuss tax preparation for the 2021 tax year, it’s best to be proactive than reactive, especially with regards to business financials. With tax season on the horizon, business owners should know what tax preparation tips will help them best organize their finances for the upcoming season. Want to know how your business can be ahead of its tax filing for 2021? In the content below, we share our top eight tax preparation tips to help you get your business ready for the 2021 tax season.
8 Tax Preparation Tips
#1. Gather All 2021 Tax and Financial Documents
As one of the most important tax preparation tips on this list, don’t wait until the last minute to collect all your tax documents and prepare them for filing! With several months’ time before the official tax season begins, give yourself enough time to gather your tax documents and organize them for a streamlined filing process.
Therefore, begin collecting and scanning everything tax-related such as purchase and sales receipts, property records, federal forms, and charitable donation receipts, and monitor how they’ll be impacted in the tax year 2021. For enhanced organization, upload a copy of them to your desktop for easy access and digital back-up. Remember, tax deductions can help you lower your company’s tax bill!
#2. Refer to Previous Tax Returns to Gauge Projected Return for 2021
Use the year 2020 tax return your business filed as a baseline for what deductions or credits may be available in 2021. Why your 2020 tax return? Tax laws generally don’t change drastically from year to-year, making your past returns a great reference to use.
However, especially with the economic effects brought by the global pandemic, tax deductions and credits for 2021 might appear similar to that of 2020. It is important to remember that some expenses, such as travel, will not have depreciation deducted this year. Consult a tax professional to alert you of any other differences.
#3. Review Previous Tax Credits and Deductions to See if Any Went Unclaimed
How many business executives remember the exact details of their expenditures months after the fact? By maintaining organized records of your company’s expenses, you could help your business in several ways. Recording detailed records effectively reduces your risk of overlooking deductible expenses when preparing your 2021 tax return. The ultimate consequence of poor recordkeeping is enforced payment of more tax than the law requires.
Explicit records provide the best assurance of a favorable outcome if you are audited. Oral testimony alone is seldom enough to prove the deductions you claim on your tax return—auditors want to see a paper trail of receipts and logs.
Review any tax credits or tax deductions that you may have missed in previous years. If you discover that your business did not receive qualifying tax deductions in previous tax years, take quick action and claim them to avoid missing reimbursement for past deductions.
However, it is important to note that some tax credits and deductions may only be available for a certain number of years after they are claimed or acquired. Therefore, be sure to consult a tax professional for questions about your specific situation and what options are available.
#4. Update Your Financial Asset Inventory and Calculate Any Accrued Interest
Regularly update your inventory of all financial assets, including stocks, bonds, real estate, and retirement accounts so you can report them accurately on tax forms. Be sure to include any accrued interest that occurred in 2021.
Additionally, if your business filed for any SBA Loans, organize all documents highlighting the remaining balance, accrued interest, and other important details.
#5. Track Your Taxable Income
Track all tax-related income, such as wages, sales, bonuses, commission, and tips to determine if you’re owed any tax refunds. Especially for small businesses filed as sole proprietorships and self-employed organizations, this will be a critical component to ensuring your business receives any applicable credits, deductions, and refunds.
#6. Carefully Review Upcoming Tax Forms
Carefully review upcoming tax forms provided by the IRS to ensure your business is both filing wages and employment information correctly and taking full advantage of tax withholdings, credits, and deductions.
If you’ve been considering tax changes such as withholding adjustments, begin planning now by reviewing your tax form before filing so that no adjustments need be made later.
#7. Prepare for President Biden’s 2021 Tax Plan Changes
When discussing tax preparations tips for 2021, you must also consider proposed tax plans brought by the Biden Administration. Therefore, prepare for upcoming tax changes by reviewing which tax plan changes will go into effect during the 2021 tax year.
President Biden’s 2021 Tax Plan promotes several changes across multiple financial avenues that could impact your business. Overall, the Biden administration is proposing approximately $4 trillion of new federal spending across the span of 10 years, partially funded with higher taxes on individuals and businesses, while prominent members of the House and Senate promoted bills that include everything from increases in capital gains and corporate income taxes to new individual and business tax credits.
By exploring the specificities of his tax plan in its application to your business, you can effectively begin to adjust your financials and documentation for better preparation.
#8. Consider Partnering with a Tax Professional
Regardless of if it’s your first full year as a business, or you’ve been in the industry for years, hiring an accountant or tax professional can save you time and frustration in navigating the upcoming tax season, especially if your return is complicated by investments and deductions.
Therefore, delegate your 2021 tax preparation and planning to a team of experts so you can focus on growing your business and brand!
Eco-Tax, Inc: Virtual Tax Preparation Services
At Eco-Tax, we provide our clients with a unique, customizable, one-stop shop for small business financial needs. Our CPAs and EAs make business tax filings affordable, quick, and easy. As a result, we will ensure business and tax compliance with the IRS and your State Tax agency while maximizing your tax savings.
If you’re curious about our virtual tax preparation services, we would love to explore our options and answer your questions through an initial consultation.
Get in touch at 866.968.4848 or complete our online free consultation form. One of our experts will respond shortly!