Preparing for Tax Day isn’t only a Q1 activity for World-Class MSPs. For them, it’s practically an all-year event. But unlike them, many MSPs procrastinate filing their taxes, and that’s where they can get themselves into a world of trouble.
MSPs aren’t the only ones who put off doing their taxes. Thirty-three percent of Americans wait until the last minute to do their taxes, according to a recent survey by IPX 1031. But filing taxes doesn’t have to be tedious for MSPs if they take initiative throughout the year.
Here’s what you should do throughout the year to better prepare yourself for Tax Day.
Don’t Ignore Your Bookkeeping
Bookkeeping is one of those things we tend to put off more than we should. Staying up to date with your accounts saves you (and your accountant) a lot of headaches during tax season. Waiting until the end of the quarter (or year) to get your finances in order is a mistake, one many MSPs make, so you’re not alone. If you are doing the bookkeeping yourself, consider hiring a professional to ensure your business accounting is organized come tax season. While hiring a full-time bookkeeper may be out of the question for you, having someone review your books regularly makes all the difference.
Don’t Forget About Your Estimated Taxes
What you may not know is this: The IRS requires you to pay taxes as you earn or receive income during the year. Now, this usually isn’t a problem for someone receiving a paycheck every couple of weeks, but for small business owners, this begs the question: How often should I pay Uncle Sam? Most small business owners pay what is called estimated taxes, which are quarterly tax payments you make throughout the year. “To figure your estimated tax, you must figure your expected adjusted gross income, taxable income, taxes, deductions, and credits for the year,” according to the IRS. Determining your estimated tax is not always easy, so consider seeking help from a professional.
Know Common Tax Deductions
“I’ll just write it off,” is a common phrase heard among business owners, but what does “writing it off” actually mean? If you’re new to the business world, you may not know. You can’t simply write off every business expense, as not all business expenses are tax-deductible. And even if an expense is tax-deductible, there could also be restrictions or qualifications. For example, you can deduct your meals, but only 50 percent. Knowing what you can and cannot deduct matters in the long run. Also, be sure to maximize pre-tax retirement deductions.
Seek A Professional
Ever try reading the income tax code? If so, how far did you get? It’s near impossible to understand, isn’t it? There’s no reason why you shouldn’t hire an accountant to help you with filing your taxes. Your efforts are better used elsewhere. Find an accountant who specializes in businesses, and if you can find a business accountant who also works with MSPs, even better.
Getting yourself caught up in tax issues can lead to big problems. It’s not worth the risk. Do what you can to understand the basics, including basic deductions, but after that, leave it to the experts.
Remember, it’s not how much you make, it’s how much you keep!
This article is intended to help MSPs gain perspective and is not intended as accounting advice. Be sure to consult with a CPA for expert advice on the accounting needs of your business.