As small business owners, we enter the new year with hopes for an improvement to the economy and dreams of success for our businesses.
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Even if last year was a banner year for your business, there is always room for more prosperity, efficiency and growth. Here are some suggested new year’s resolutions:
I will computerize. If you haven’t yet done so, drag your accounting into the 21st Century by installing accounting software. Most packages are very simple for the non-accounting professional to use.
A decent accounting program simplifies tax return preparation and financial and tax planning because they generate comprehensive reports. Being able to compare income statements to see the differences from year to year can help evaluate and track growth.
I will audit proof my tax return by documenting red flags. Deductions such as travel, meals, and entertainment expense are often scrutinized for business intent. Be sure to back up those receipts and cancelled checks with other documentation such as flyers and names to substantiate business purpose.
For example, if you attend a business conference in Maui or some other vacation destination, keep a copy of the registration and flyers to prove the business purpose of the trip. Otherwise, the IRS will think it was a vacation and may disallow the expense.
I will balance my books and checking account every month. Review your company’s financial statements on a regular basis to determine the progress of your business, pinpoint weak spots, and to plan for the future.
Your financial statements are the basis of all business decisions. The profit and loss statement and the balance sheet are the two main financial statements for you business
. If you don’t know how to read them, ask your accountant to provide you with a short course. It’s not as tough as it looks, and you will get some insights that will bring improvement to your business operations.
I will track business mileage. In your 2012 tax file, note your Jan. 1 beginning mileage and set a reminder to record your Dec. 31 ending mileage.
If you are unable to keep a log, at least keep a list of your business destinations throughout the year. That way, you will be able to make a more accurate determination of vehicle expense for your tax return. The IRS asks for total mileage, business miles driven as well as personal and commuting miles. Give them an accurate assessment this year. Even if a vehicle is used 100% for business, the IRS still wants the total mileage figure.
I will go paperless. Many years ago I realized that whenever a client calls with a question about a tax return, I never pull a hard copy from the filing cabinet—I bring it up on the computer screen. So I quit making paper copies. Why kill a tree?
I now retain almost everything on my hard drive. Be very careful though, a computer crash can wipe out everything, so be sure to have a regimented back up routine.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.