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Things to Do to Prepare for Taxes

After you’ve jumped, shouted and cheered at the dawn of a new year, you groan at the prospect of having to face tax time. Preparing for taxes can be tedious, but it must be done. After all, you want to make life easier on yourself when it comes time to actually file your return. To start, you have to make sure that you have all of your paperwork in order and all of your accounts are accurate.

According to Kim Ann Zimmerman in her article for Business News Daily, there are seven things that small-business owners must do in preparation for filing their taxes.

The first and most important thing to do is to make sure that you send W-2s to all of your regular employees and 1099s to all of your contract workers. If you hire contract workers here and there, you can create a folder and label it 2012 (or whatever)  W-2s and 1099s, so you have an easily accessed list of all the people you need to send a W-2 or 1099 to at the end of the year.

Next, make sure you file your form 940, Federal Unemployment Tax (FUTA). The deadline for filing is Jan. 31 for everyone, except those who deposited their quarterly taxes on time. They have until Feb. 10.

Get your finances in order. You should be keeping track of all earnings and expenditures and tracking inventory throughout the year. It’s a good idea to reconcile your accounts on a quarterly basis so you can catch any discrepancies early on. This makes it much easier for you to balance the books at tax time. The penalties for mistakes can be costly, and nobody wants to be audited.

If you received any notices from the IRS during the previous year, add them to the other documents you’ll need when you file your return.

You have to file a form 1099-K if you accepted merchant cards, such as debit cards or credit cards, for payments, or because you received payments through a third-party network that exceeded $20,000 in gross total reportable payment transactions, and the total number of those transactions exceeded 200 for the calendar year.

Double check your inventory records, just in case something is tax deductible. This could be of particular importance to one-person operations.

Finally, if you made any loans during the previous year, make sure you file all the appropriate documents. Again, you don’t want to do anything that could result in your being audited or paying a large financial penalty.

If you can afford it, it’s a good idea to hire an accountant or professional tax preparer to help you. But if paying for tax help isn’t in your budget, you can get free help on the IRS website (irs.gov).

Most people don’t like filing taxes. But small-business owners can make it a less painful process by keeping track of accounts and inventory year round, and by getting prepared well in advance of filing.

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