5 Tips Every Childcare Business Owner Should Know for Tax Season
If you feel overwhelmed by the prospect of filing your childcare business taxes, then this article is for you! In the following guide, we offer five tips to help you navigate tax filing season with less stress. Implement these strategies for success at tax time and all year long.
Face Tax Time Overwhelm with These Strategies
Undoubtedly, any CPA will tell you the most stressful time of the calendar year is tax season, and we recognize this time can be overwhelming for business owners as well. That’s why the following tips will help you take a proactive approach to filing your childcare business taxes so you can stay ahead of the stress and set yourself up for success. Keep in mind that these strategies will serve you well, but only so far as you recognize the limitations of timing when you decide to implement them. In other words, you can choose the best organization system for your business and begin to utilize it on April 1st, but it may not do you much good with a fast-approaching tax filing deadline. Timing is everything!
Tax Season Tip #1 – Keep Good Records All Year Long
This first tip may not apply directly to tax season, but it will definitely impact your business when it comes time to file your taxes. We cannot overstate the importance of keeping good records for your business throughout the year. Maintaining the financial health of your childcare company is not a once-a-year effort, it’s an ongoing process.
What does this mean for your Early Childhood Education business?
It means you should be putting the following into practice throughout the calendar year:
- Separate business expenses from personal expenses
- Manage your payroll and make sure your payroll taxes are paid out quarterly
- Check in with your accountant at least once per quarter to make sure your books are up-to-date and your estimated tax payments are accurate
- Keep records of income and expenses, including receipts for purchases, especially for those items for which you may be eligible for a tax deduction
- Maintain a record of previous tax returns and know how long to keep important documents on file
- Keep your accountant up-to-date with any significant changes to your business, such as large transactions, as they happen throughout the year and preferably before they happen
- Collect outstanding payments as they arise
- Set aside extra money in your budget (some experts recommend 10% more than what you expect to owe come tax time) so you are not caught off-guard by larger-than-expected payment totals
These practices implemented on a regular basis throughout the calendar year will ensure that your financial records are as complete and up-to-date as possible when you begin making preparations to file your taxes.
Tax Season Tip #2 – Choose the Best Organization System for Your Business
This second tip goes hand-in-hand with Tip #1. You can’t keep good records if you don’t have a good organization system for your financial documents. Choosing a system that works for your childcare business is essential.
Some business owners prefer to keep track of their financial records the “old-fashioned” way, with a paper filing system. Keeping financial documents, including tax returns, bank statements, credit card statements, receipts, and so on, in a filing cabinet or other secure storage, may be a viable option for your childcare business. One thing to keep in mind is that your tax accountant may prefer using a digital system for their clients to submit tax documents and other financial records. In addition, electronic filing is the fastest way to file your taxes with the IRS, and choosing direct deposit is the fastest way to get your tax return, if you have one. There is nothing wrong with a paper filing system, but it may slow down the process for you and your accountant during tax time, so plan in advance.
Business owners who prefer to keep track of their financial records with a digital filing system discover there are many secure, cloud-based filing systems available to them. Reputable digital filing systems offer protected online storage for all your financial documents and make it easy and convenient to share those records with your tax accountant during tax time and throughout the year. Most accounting and bookkeeping software programs offer secure, digital storage for your financial records.
No matter which option you choose to organize your important business documents, you will find with a system in place, you’ll have everything you need right when you need it for tax time.
Tax Season Tip #3 – Look for Tax Deductions During the Tax Year
Like the other tips, Tip #3 will also require some advanced planning on your part to help you better prepare for a successful tax filing season. Fortunately, there are quite a few tax deductions your childcare business may be eligible for. However, what many business owners fail to realize is that when they try to figure out which deductions apply to them after the tax year has ended, they often discover that it’s too late to take advantage of them.
When clients come in to meet with their professional tax accountant during tax season expecting their CPA to figure out how to reduce their taxable income after the fact, what they don’t realize is that it’s too late in the game to be having this conversation for the first time. Deciding which tax deductions your business may qualify for is a process that extends beyond the scope of one meeting during the chaos of tax season and it’s something you and your accountant need to be discussing throughout the tax year you are currently in. Tax time should be when you and your accountant are reviewing the tax deductions you already qualify for, not the time when you try to figure out which ones apply to you. Advanced planning is key!
Tax Season Tip #4 – Get a Jump on Filing Your Taxes Early
Many business owners wait until they receive the annual tax information packet from their accountant to begin getting everything ready to file their taxes. Get ahead of the game by setting up an appointment with your accountant as early as possible. November or December is not too soon, or shortly after the new year works too. Of course, you’ll need to file your taxes according to the official IRS tax filing season, which generally begins at the end of January. But meeting with your accountant before the season gets underway is never a bad idea.
The more proactive you can be in getting your tax documents together and meeting with your accountant, the less overwhelmed you will be as tax deadlines draw near.
Tax Season Tip #5 – Consider an Extension If You Need One
Missing tax deadlines can result in stiff penalties from the IRS, which is why you should consider applying for an extension if you need one. When you apply for an extension on your tax filing deadline, the IRS grants you an additional six months to file your tax return. This grace period in no way alters the amount of taxes you ultimately owe, but it can be advantageous for some business owners who otherwise may not be able to file a complete or accurate return on time.
With Honest Buck Accounting, you can trust that your childcare business taxes are in the hands of the experts. Tax season is our busiest time of year, so don’t wait to get in touch with us if you are a current client. Reach out today!
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