Six Ways to Ensure Your Business Is Ready Come Tax Time

Proper preparation throughout the year will keep you from getting caught off guard when payments are due.

A pair of hands on a desk with one handing resting on the keyboard of a laptop and the other holding a pen above an accounting graphic.
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It’s the one time of year that causes particular financial anxiety for any income-earning individual: tax time. Whether it’s the often confusing, tedious chore of gathering information for your tax preparer or the dread of not knowing whether you will earn a refund or have to pay that year, preparing for tax time can be stressful for many — even business owners.

Unlike for individual taxpayers, tax time for business owners doesn’t necessarily occur just once a year. This means business owners need to be organized and meticulous with their finances throughout the year if they want to ensure they’re ready when taxes come due.

But what exactly does that entail? What steps do they need to take to prepare? The financial and tax experts of Kiplinger Advisor Collective weigh in with their answers below. They discuss the six steps you’ll need to take if you want to be properly prepared for tax time, reduce your anxiety around taxes and ensure your business thrives throughout the year.

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Maintain well-documented financial records
“One key step business leaders must take to ensure readiness for tax season is maintaining meticulous and up-to-date financial records throughout the year. It's also advisable to consult with a tax professional periodically to stay well informed of tax law changes. Effective record-keeping and professional guidance ensure businesses efficiently meet tax obligations.” — Amrita Choudhary, Wasabi Technologies

Start cash flow forecasting
“So many small businesses do not have a budget, and even fewer are forward-looking with their finances. If you want to stay ahead of the tax monster, cash flow forecasting is one of the best ways to do it. As you add expected income and expenses to the books, you can see your quarterly income. Give that to your CPA, and they can tell you what you'll owe and how much to set aside. No more worrying.” — Chris Alman, Equip Financial Partners

Plan ahead for quarterly taxes
“Get proactive on tax planning! Unlike the ordinary W-2 taxpayer, business owners pay their taxes periodically (oftentimes quarterly) in lumpy installments. If they’re not proactively planning ahead for an upcoming tax payment, business owners’ cash flow can be heavily disrupted. The most disruptive period for business owners is undoubtedly April, when they’re finalizing the previous year’s taxes and making their first payment.”  — Dennis McNamara, wHealth Advisors

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Take a collaborative approach
“I advise my business owner clients that tax planning should be a collaboration between the owner, accountant and financial adviser, and that it should go beyond the scope of filing taxes and into forecasting tax liabilities and benefits. A team effort transforms the unknown into estimated ‘knowns’ that owners can fund monthly using a side-pocket account, which helps reduce the anxiety and worry of paying taxes.” — Dr. Preston D. Cherry, Concurrent Financial Planning

Build up cash reserves that can be used beyond your payment
“I advise that business owners and entrepreneurs maintain adequate liquidity for estimated quarterly tax payments. I collaborate with their tax professionals so that my clients are not unpleasantly surprised. Any excess cash reserves above and beyond quarterly tax payments can also be used to fund a retirement plan, which can reduce their tax liability.” — Marguerita Cheng, Blue Ocean Global Wealth

Leverage an interest-bearing account
“I recommend hiring a good accountant to advise you on your tax outlook. You should set aside money that will be needed for taxes as you earn it. You can pay quarterly estimated tax payments, or you could open an interest-bearing account and accumulate a percentage (this varies based on the business) of your gross sales into that account. You will have access to it, earn interest and have the money when taxes are due.” — Dennis Futch, The Tax Shop

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The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Kiplinger Advisor Collective

Kiplinger Advisor Collective is the premier criteria-based professional organization for personal finance advisors, managers, and executives.