Mar 24 Preventing Business Accounting Mistakes
In a perfect world, everyone would make it part of their routine to consistently assess the state of their financial situation, especially as it relates to taxes. Much is made about the stressful nature of tax season; to some degree, this is a legitimate perception. The reality, however, is that most of the general stress and the real, specific financial problems that can occur during tax season are due to a lack of preparation. As is true in most areas of life, when it comes to taxes and personal finances, an ounce of preparation is worth a pound of cure.
For tax purposes, this means that time and energy is much more effectively and efficiently spent in developing awareness of tax-related issues before it is time to file taxes, as opposed to after the fact once it is revealed that there may be a potential issue related to something such as an audit or a missed deadline. Many people never develop the tax awareness of habit, and that may be in part because most individuals can skate by just fine without it. Individuals without complex financial circumstances are usually able to pull their information and brainpower together at the last minute to get their tax job done. Businesses, however, do not have this luxury.
Businesses always have at least a slightly complex tax situation; additionally, the tax ramifications for businesses—particularly small businesses—on the rest of their financial outlook is often significant. Tax issues can harm, or at least significantly limit the growth potential of a business. Here are some effective strategies for avoiding business tax issues.
Finding The Right System
There is more than one way for small businesses to track income and expenses. The two primary systems are known as cash-based or accrual-based accounting. Cash-based accounting involves totaling income at the point where the income is actually received and totaling expenses at the point where the money is spent. The accrual method, by contrast, totals income and expenses when the transaction is made, not waiting until the money is actually moved. The choice over which system to use involves the nature of a business. Smaller businesses without much inventory on hand at a given time and who do not use credit extensively may be more inclined to use the cash-based method. For businesses with large inventories, those who always perform transactions with credit or who generate a lot of sales may be better using and may even be required by the IRS to use the accrual method.
Using Automated Tools
Accounting software has never been more advanced, effective and user-friendly than it is today. Additionally, such business software may be eligible to be written off as a tax deduction for businesses. The latest bookkeeping software can help busy business owners keep track of income and expenses, prepare tax documents and even maintain an automated payroll system. For those who don’t feel comfortable with such an automated system, a Clinton NJ business accounting professional who is equipped with the latest software can also be an asset.
Staying organized is perhaps the best general financial advice for both businesses and individuals. For small businesses in particular, organization can be the difference between growth or contraction, efficiency or inefficiency, stress or comfort and success or failure. Organization for small businesses means keeping daily records and handling checks carefully among many other tasks that are vital to building a sustainable business. Again, a financial professional can assist in implementing the right system for particular needs.