January 2022 is a time to get your resolutions down on paper, get motivated to hit your yearly goals and… prepare your taxes.
Although tax strategies vary from one business to another, there are a few steps I encourage all my clients to take. It’s just good tax housekeeping.
- Get organized
- Set up a folder on your drive or PC for TAXES 2022
- Add all your digital receipts
- For physical receipts, take photos and save those in as well
Having all your receipts in one place, makes it a lot easier to start prepping your taxes early on. It will also save you time, and ensure you won’t miss anything out.
- Good bookkeeping makes tax preparation easier
Whether you keep your own books, or you have a bookkeeper, it’s good practice to…
- Categorize your business transactions
- Go through your bank account and make sure you haven’t missed out any business transactions
- Reconcile your accounts
- Compare against your profit & loss statement for accuracy
- Calculate expenses
- Business use of the car
- Business use of mobile phone
- Business use of internet
If you’re working from home, make sure to add a part of home utilities on your expenses.
- Gather all your docs in a row
- Social Security number
- Business Tax ID
- Account numbers for making payments
- Income reporting docs: W-2(s), 1099(s), profit & loss statement
- Adjustments to income: 401(k) contributions, self-employed health insurance,
- Estimated taxes paid throughout the year
- Additional forms: 1096, W-3, federal and state payroll returns (Form 940, 941)
- Important tax dates for your calendar
📅 31 Jan – Send out W-2s and 1099s
📅 15 Mar – Prior year tax filings due for S-corps and C-corps
📅 15 Apr – Prior year tax filings due for personal, sole proprietors, partnerships
📅 15 Apr – Your 1st estimated tax payment
📅 15 Jun – Your 2nd estimated tax payment
📅 03 Sep – Your 3rd estimated tax payment
📅 04 Jan – Your final estimated tax payment
- Is your tax status accurate?
The start of the year is also a good time to think whether you should change your tax status. The amount of tax you pay will depend a great deal on the type of business you have. So if at the start of 2022 you think you’ve outgrown your business structure, you may talk to your tax advisor and file for a different structure. For example, LLCs can elect to be taxed like a C corporation by filing Form 8832 with the IRS and drop the top corporate tax rate from 35% to 21%.
If your business is registered as a sole proprietorship, partnership, LLC and S corporation, your company’s net income will “go through” your individual tax return, where the highest tax bracket is 37%. But for LLC members in the top tax bracket, a tax status change can result in significant tax savings.
As a CFO I work closely with a dedicated CPA to ensure my clients tax strategy is aligned with their business goals and the financial strategy I set out. And the first steps are always tidy books, accurate records and good housekeeping.
So tell me, do you have a tax strategy or are you ready to implement one in your business?