Most people dread tax time. The task of gathering the past year’s paperwork and filing a tax return seems daunting. And learning at the end that taxes are owed hardly makes it seem worth the effort.
Here are some things business owners in the trades should consider while preparing for tax season:
1. Set up an accounting system
How are you keeping your books? You have got to know your numbers! At Working Numbers, we recommend Quickbooks Online for your bookkeeping. Find a certified bookkeeper to help you set up your books, and you are ready to track everything. The reports you can create will provide you with the critical information you need to run your business. Using the Projects feature in Quickbooks Online for your contracting company is especially useful for job costing. The Projects feature can track income and expenses by the job, so you will not need to wonder what your profit margin was on that job that required an unexpected additional trip to the job site.
2. Keep a record of everything
You should have every sale and expense recorded and dated, whether or not you think it’s important. Every construction business owner should keep documents throughout the year, including invoices, bank statements, receipts, and bills from vendors. You can also use apps to document expenses, so you can finally be rid of those receipts flying around in your company truck. Use your phone to snap a picture, note the customer or project, and you’re done! Many of these apps integrate with Quickbooks Online, so that is an added benefit. No more calls from your bookkeeper asking for receipts!
3. Pay your taxes during the year
The IRS expects you to pay taxes as you earn income throughout the year. You can make quarterly estimated tax payments or, if you are taxed as an S Corporation, pay tax by the withholdings from your paycheck. By making quarterly payments, you can end up depositing 90% of what you owed in the previous year and avoid an unpleasant surprise come April. Staying ahead of your taxes is great for cash flow because you will not find yourself using every available dollar to pay taxes when April 15th arrives.
4. Separate your personal and business expenses
Set up a separate legal entity for your construction company, open business bank accounts, and use an accounting system like Quickbooks Online. Failing to separate your expenses during the year can keep you from getting a small business loan or building a business credit history. You may want to hire a business attorney to create an LLC for your business. Because an LLC is a separate entity, the owners of the company have limited liability. This is one of the most important reasons to operate as a limited liability company. Limited liability means that your individual assets as an LLC member cannot be used to satisfy the LLC’s debts and obligations. One less thing for you to worry about.
5. Consider hiring a tax professional
Most construction businesses would benefit from having a professional handle their taxes. Do yourself a favor and find one now. Starting in late March, most tax preparers become inundated with clients who have left everything to the last minute. By checking in with them now, you avoid the rush and will be able to get more focused, personal attention. Talk to your tax preparer about where your contracting business is at. Ask them questions and see if they have any suggestions for you. They may be able to spot trouble ahead and help you avoid it. At Working Numbers, we help by communicating with our clients’ tax professionals to get them the information they need to complete the tax return accurately.
Your construction business can be ready for tax time!
By taking the steps above, you will no longer need to dread tax season; you can enter it with confidence! Contact us at Working Numbers if you would like assistance with setting up Quickbooks Online or cleaning up your existing books. We work with contractors in the construction trades to help them get their books in order so they can build a successful business. If your contracting or home services business needs help – let the experts at Working Numbers get your books organized.