This upcoming tax season is going to be particularly challenging for tax professionals, businesses, individuals and the Internal Revenue Service due to a shortage of certified public accountants and IRS staff members.
That will likely lead to longer processing times, a higher backlog of unprocessed returns and possible delays in communication.
Here are a few ways businesses can prepare for the smoothest tax season possible.
Get in line first
If you haven’t already started compiling your materials and cleaning up your books, do it now. Filing early will help avoid last-minute bottlenecks if any of your paperwork is missing, or if there are unexpected questions that come up related to your returns.
File electronically if possible, because it is faster, more accurate and provides prompt confirmation that the IRS has received your return.
Come organized
Before sending anything into your tax professional, reconcile bank accounts, review receivables and payables, confirm payroll totals, double-check 1099s and W-2s and most importantly, come in with clean books.
Small errors can trigger notices and further questions between you and your tax preparer, and filling may take longer this year. A little prep now saves a lot of frustration later, ensures your return will be completed as quickly as possible.
Review deductions and investments
It can feel like a tsunami at tax time when you start reviewing and organizing investments and expenditures made over the year – which could now qualify as deductions – and lead to a lower tax payment.
Even if you are hoping to get in quickly, be deliberate and carefully review major deductions like bonus depreciation, equipment purchases and the Qualified Business Income deduction.
If you made capital investments or are planning them, make sure they’re structured to maximize your tax position. Don’t leave money on the table. Some commonly missed deductions to consider, would be:
• Home office use
• Business use of a vehicle
• Software subscriptions and fees
• Equipment purchases
And of course, timing matters. Depending on your profitability, it may make sense to accelerate expenses or defer income.
Plan for the worst
If you need to file an extension, there are simple ways to avoid penalties. Pay your quarterly estimates on time and let your accountant know what you paid. Have a conversation with your CPA to make sure you’re hitting safe harbor thresholds to avoid other interest and tax penalties. And if you are lucky enough to expect a refund, plan for it to take much longer.
Build up a cash reserve as a backup, as this is not the year to rely on a quick turnaround.
Be strategic
Tax season is an ideal time to evaluate whether your current business structure still serves your goals. Ask yourself: Should you be taxed as an S-Corp? Is your reasonable compensation set appropriately? Are you paying yourself in the most tax-efficient way? Are your estimated payments aligned with your actual profit?
As your business grows, your tax strategy should evolve with it. What worked before may no longer be the most advantageous approach, and taking time now to reassess can lead to smarter financial planning for the year ahead.
Plan ahead
While overwhelming to even think about, tax season is also a perfect time to start planning for next year.
We recommend setting up a separate savings account to stash future tax funds away to cover needed quarterly estimated payments and possible future tax liabilities. Having a dedicated account for tax payments provides peace of mind and relieves pressure on your day-to-day cash flow. If you don’t end up needing the funds for tax purposes by the end of the year, they can be used in other ways to accomplish your business goals.
Be nice
Tax season doesn’t have to be chaotic, but being proactive matters more than usual this year.
And remember, your tax professionals are putting in long days during tax season. Give them grace and remember that hitting the deadlines is just as important to them as it is to you and your business.