2024 Guide to Preparing for Tax Season
Tax season is never fun to think about as a business owner. Your construction company is growing, along with your labor costs, and there’s a lot that you need to track that you didn’t need to as a smaller company.
Preparing for tax season is all about getting your books in order.
You don’t want to be left scrambling at the last minute to provide your CPA with all of the proper:
- Documents
- Transaction records
- Financial statements
If you’re prepping for tax season, our guide will help you gather the documents you need to pass along to your accountant to maximize deductions, pay your taxes, and have a smoother tax season overall.
Bookkeeping to Get Your “House in Order”
On average, it takes 15 hours per week for a micro-business to manage financial transactions – it’s a lot of work. Your books will only continue to grow in complexity over the years, and you’ll need to work on:
- Recording all of your business transactions in a general ledger. Categorizing each expense accurately will make it easier for your accountant to prepare your taxes.
- Balancing the books. What does this mean? You need to sum up your debits and credits to ensure that they’re equal. If your debits and credits do not equal one another, your books are not balanced. This is when using QuickBooks or a similar platform can help save you time.
- Reconciling your accounts. You need to go through the tedious task of making sure that your bank records and books match. Xero has a helpful guide on how to reconcile your accounts manually.
- Tracking your inventory and equipment. Your tools and machinery are critical to your business operations. Maintaining strict inventory will reduce waste and job costs.
If you have comingled your accounts, you’ll need to begin separating them. Mixing business and personal accounts may seem easier when you’re a small construction company, but it creates a mess down the road (and makes it much more cumbersome to maximize your deductions).
And, as a bookkeeper, we can work on getting your house in order to make it as simple and easy as possible to file taxes this coming year. Most small businesses will file on April 15 – like citizens do. However, if you’re a Multimember LLC, S corporation or a Partnership, you must file your return by March 15.
Working with a bookkeeper can help identify issues, manage reconciliations, and post your transactions for each week.
Work on Organizing Your Deductions and Paperwork
You may assume that if you’re filing taxes and performing all of the tasks above, you’re ready to prepare your taxes. Unfortunately, construction companies can come under an audit, and it’s one of the most stressful experiences of owning a business.
And to make matters worse, you will be expected to keep all of your records for three years or longer.
Paper documents can become overwhelming to manage, and you will want to think of going paperless. If you go paperless, you’ll have an easier time:
- Storing payments, material receipts and other documents
- Organizing all of your financials for the year
- Fighting back against an audit
It’s better to have your documents in order so that if you’re ever audited, you’ll have an easy time supplying any of the necessary documents to the IRS. Systems and processes will put guides in place for you to follow to systematically keep your paperwork in order.
Speak with your accountant prior to each quarter to discuss any major expenses that you’re going to make. Your accountant will help you choose the right time for large investments to keep your tax burden to a minimum.
If you’re not planning for taxes, you may miss deduction opportunities that will keep your company in better financial health.
Allot Enough Money to Taxes
If you rely solely on financial forecasting when estimating your taxes, you’ll be in for a big surprise if your forecast is off. The IRS will want its money. Paying estimated taxes throughout the year will allow you to:
- Avoid potentially large interest payments
- Keep enough money aside for taxes
- Continue managing your business with confidence
Your CPA can help you determine how much money you should set aside for taxes based on your entity type. If you’re a small contractor, it’s wise to keep at least 30% aside for paying estimated taxes. However, know this isn’t a hard and fast rule, so it’s better to get an exact number from your CPA.
One strategy that works well for many businesses is to put a percentage of income into a business savings account after each invoice is paid. It’s better to have a little extra left over than have to scramble to pay your estimated taxes.
Working with an accountant throughout the quarter will help you better manage your finances and prepare to pay your taxes.
Work Alongside Your Bookkeeper and CPA
Your bookkeeper, the person who is doing your accounting and bookkeeping, and your CPA should work together throughout the year. For example, your accountant can provide your reconciled accounts to your CPA, who will:
- Assist with tax planning
- Determine if you’re paying proper estimated taxes
- Etc.
Tax planning alone can help you better plan for expenses and manage your cash flow.
Note: Filing your own taxes as a business owner often leaves money on the table. You’ll need to stay current on tax changes and planning. Your time is better spent on core tasks while an accountant and CPA deal with getting your books and deductions in order.
Tax season is stressful. Handling your own books is a time-consuming and demanding task that will take you away from focusing on your core business objectives. We’ll handle your books for you, with multiple plan options that are designed to fit into every budget:
- Quarterly
- Monthly
- Advisory assistance
We offer extensive services designed for construction companies that will help you with preparing for taxes, including QuickBooks training and setup, bill payment, payroll, and other integral options.
