By William Jarrard
With tax season upon us, many find themselves painfully unsure of what the results will be when the numbers are crunched. It’s an unfortunate and unnecessary reality that many individuals and businesses are left to wonder whether they’ll have a windfall or sudden liability when their return is filed. I note “unnecessary,” because, while you may not be able to alleviate your stress for the current filing season, much can be done to ensure that you are not in the same position next year. And the time to start is now.
By starting in January each year and staying on top of it throughout the next twelve months, you can avoid headaches when the next tax season rolls around. Whether a business or individual, there are several steps to follow that will keep you and your accountant apprised of your tax status.
For an individual, sit down in January and set a personal budget, remembering that budgets only work if you check periodically to see that you’re on track. Reconcile your checkbook regularly and track expenses. This can be done on paper or with basic accounting or spreadsheet software.
Set up folders to record all tax-related items, including contributions, medical expenses, property taxes, tuition expense, personal business expenses, IRA contributions, investments and interest income. This step will make year-end filing a breeze. If your income is variable (often the case with commission-based salespeople or those who receive periodic bonuses), make sure that adequate quarterly estimates are paid. This is key to avoiding a major hit at the end of the year, only to be compounded by penalties if the amount is too large.
Finally, discuss your outlook regularly with your CPA. The frequency of this contact depends on the complexity of your situation, and your accountant should be able to guide you on how often this is necessary. Bottom line, don’t wait until year-end to find out if you’ve paid in enough or if there are things you could have done to off-set your tax liability.
For businesses, many of the same principles hold true, with a few additions. Even if your business is relatively small, open and maintain a checking account separate from your personal finances. Never co-mingle personal and business funds. You’ll also want to set up and use basic financial software to track expenses and income (or have someone do this for you). There are several good, yet relatively simple programs out there, including Quickbooks, Peachtree and Quicken.
Every business also should maintain vendor and customer folders, documenting billing and receiving by accounts. As with personal finances, it’s imperative that you reconcile your checkbook regularly and track all expenses. Again, discuss your outlook quarterly with your CPA. Quarterly payroll filings provide a wonderful opportunity to do this.
While some worry that they’re bothering their accountant by asking questions and checking throughout the year, this is something we actually encourage our clients to do. Regular communication should be part of your CPA relationship, and it should yield a much better bottom line for you.
William “Bill” Jarrard is a principal with Jarrard, Nowell & Rusell, a certified public accounting and business advisory firm based in Charleston. Bill can be reached at (843)723-2768 or email@example.com.