Prepare for Tax Season 2023: 4 Easy Actions You Can Take to Get Ahead
As we wrap up the year, it’s time to start thinking about tax season! Now, if even the mention of tax season is making your palms sweaty and setting your heart racing, you are not alone!
Luckily, we still have time before tax season kicks in – and there are some actions you can take today to get prepared for a stress-free and easy tax season in 2023!
What’s New Or Different From 2022?
As we prepare for tax season, it’s always a good idea to get up-to-date on the changes from the previous year. In 2023, the biggest change that will have an impact on small business owners is the introduction of the Inflation Reduction Act (IRA). Signed into law on August 16, many of the aspects outlined in this act kick in after 31 Dec 2022.
Among other things, this IRA outlines several key tax provisions. These include the Affordable Care Act Subsidies, Residential Clean Energy Credit, and Clean Vehicle Credit. Learn more about these tax provisions here or consult with a tax specialist to find out more about what this means for your business.
Apart from looking into these changes in Tax Year 2022, what are some actions you can take to prepare to file your taxes in the new year? Here are four simple things you can do today to get ahead for tax season 2023.
1. Evaluate Your Quarterly Estimated Tax Payments
If you’re self-employed, you’re generally required to pay your taxes in four installments through the course of the year rather than in one lump sum. These “estimated tax payments” are the taxes you would pay based on the total amount of income you estimate you will make during the year. It includes federal income tax, self-employment tax, and any other applicable taxes).
When filing as a sole proprietor, a partnership, an S corporation shareholder, and/or a self-employed individual, you will likely need to make estimated quarterly tax payments if your total tax bill will amount to $1,000 or more.
Ahead of tax season 2023, make sure you do not have any outstanding quarterly estimated tax payments. Set aside money for taxes if needed!
Wondering how much you should be paying in quarterly estimated tax payments? Use the IRS Withholding Calculator to figure it out or get a more detailed breakdown in our blog post. If you want to get step-by-step guidance in calculating estimated tax payments (and setting up a sound financial foundation for your business), check out The Exceptional Business Membership!
2. Update Your Bookkeeping Records
One thing I see many business owners struggle with when it is time to file taxes is bookkeeping records that are not up-to-date. Rather than panicking about books that are all over the place when it is time to file, why not get a head start on that now?
Start by making sure that all transactions are reconciled. Whether that’s an invoice paid by a client or an expense you made on behalf of the company, make sure that every transaction that you have recorded is complete, valid, and accurate.
Another thing that can be a big time saver in tax season is ensuring that all the transactions are correctly categorized. This will make it easier for you to review the transactions when it is time to file your taxes and gives you a clear view of the financial activities of your business.
While you’re at it, be sure to also separate business transactions from personal transactions. Having personal transactions mixed in with business transactions is a red flag for the IRS that could trigger an audit. Avoid them by keeping personal transactions separate!
3. Get Your Deductions In Order
Ensure you are getting the most out of the deductions and credits available to you to lower your tax bill by reviewing them ahead of the end of the year. Charitable contributions, contributions made to a retirement account, and even money put into a Health Savings Account can significantly reduce your taxable income.
However, these contributions need to be set up during the tax year in order to apply when filing your taxes in April 2023.
You can also start getting business expenses and deductions organized and tracking down any relevant paperwork you may need as proof. Some common business expenses that small business owners may deduct include the business use of their home and vehicle, office expenses, and self-employed health insurance.
4. Familiarize Yourself with Filing Procedures
Avoid a wild scramble at the last minute by familiarizing yourself with filing procedures. Even if you’ve been filing taxes for decades, it can be helpful to review filing procedures and check that you have all the necessary documents to make the process a smooth one.
For easy reference, here are some of the common filing schedules you may need:
- Sole proprietors file on Schedule C (Form 1040).
- Single-member LLCs file on Schedule C (Form 1040).
- Multi-member LLC partnerships file on Form 1065.
- S Corporations file on Form 1120S.
- C Corporations (entities that are separate from their owners) file on Form 1120.
Taking these four simple actions can help you and your business get tax ready in 2023. However, it can be useful to have an expert guiding you through these processes – especially if you have a more complex business with advanced bookkeeping needs or you simply want the peace of mind of knowing that someone’s got your back.
Whether you need our expert eyes on your books to get them ready for tax season or you’re looking for continued support as your business grows – simply reach out to us. Book your free consultation call and get ready to breeze through tax season 2023!
