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Prepare Your Clients for a Successful Tax Season and Help Future-Proof Their Business

Every business, no matter what the size has to file taxes. From large corporations to the small entrepreneur, there are no exceptions. The process of filing taxes for a small business may be less complex for the tax preparer than it is for larger businesses, but for the solopreneur or a first-year business, it may seem overwhelming. In fact, even a filer who needs the help of a tax professional for the first time can feel overwhelmed. It can seem complicated at best.

For the tax preparer, it’s important to help your clients have a less stressful and successful tax season. They have to deal with many things like tax forms, exemptions, changes in tax laws, and more. Even though they understand these things all pertain to their business, they probably haven’t considered them throughout the entire year. Use your pre-filing process to educate clients on how to set themselves up for success. Here are some tips to discuss with them.

Tip #1: Compile and Organize Documents

Every year the tax prep process begins with organization. You may use a questionnaire to help get things organized. The more detail your client provides you, the easier it is to prepare and file their taxes. It ensures efficiency and accuracy. Stress to your clients how important it is to organize documents and complete your questionnaire processes. Most of the world works remotely now and most in-person meetings with clients are suspended. Your clients might have some concerns about sharing sensitive personal data. Consider setting up a secure portal to allow clients the option of sending tax documents and other paperwork electronically.

computer and a stack of receipts

Image by Steve Buissinne from Pixabay

Tip #2: Recommend Keeping Good Records of Payroll Reports, Expenses, and Previous Returns

Keeping financial records intact is crucial to the tax preparation process.  Firstly, the IRS requires that business owners keep returns and any associated documentation for three years. This allows a business owner to substantiate deductions or credits if needed. Also, keeping good records allows clients to prepare accurate financial statements. This is useful if they are audited. The IRS doesn’t have a statute of limitations pertaining to how far back they can audit.  Discuss record retention best practices with your clients. The IRS requires businesses to keep records for three years. But just to be certain, clients should keep them longer. Help your clients understand it’s important that they keep all documentation. Records that they should keep include anything associated with business expenses like:

  • bank statements
  • credit card receipts
  • deposit receipts

Small business owners should also retain gross receipts for at least three years from the date taxes were filed.

Tip #3: Clients Need to Be Familiar with Tax Deductions as well as Regulatory Changes

The pandemic brought a lot of changes to taxes in 2020. Many changes were directly from the federal level and also influenced numerous tax regulations. Many small business owners worked from home before the pandemic. But some of the regulatory changes still provided more eligible tax deductions for business owners. Stay on top of these regulatory changes so you can inform your clients of applicable tax deductions. Your clients who run their business from home can benefit from the home office deduction. They are able to deduct part of their rent, mortgage, utilities, phone and internet services, and sometimes home repairs. Other deductions they may be eligible for include:

  • Self-employment tax
  • Qualified Business Income (QBI)
  • Loans
  • Business Supplies
  • Insurance

Some small business owners are eligible for a deduction for the cost of starting their business in their first year.

Tip #4: Stay Informed on Tax Dates and Possible Penalties

The pandemic rearranged the landscape of tax dates and penalties. Do your clients know how to make quarterly estimated tax payments? Do they know when their 1099-NEC is due? These are important dates and your clients need to be kept aware of them. Keeping a tax calendar can help you ensure clients stay on top of tax dates.  Also, remember that local and state tax calendars often vary from the federal ones. Missed dates often result in stiff penalties. Save your clients money in the long run by keeping them informed of their tax dates.

Tip #5: Stay Updated on the Impact of PPP, PP2, the Cares Act, and Covid-19

2020 brought many changes and introduced new tax regulations as well as relief programs. Many of the new regulations protect business owners from Covid-19 financial fallout. For instance, the Payroll Protection Program (PPP) is a loan that lots of small business owners took advantage of during the pandemic. The CARES Act added confusion to already complex regulations. Your clients need to know how to navigate the filing process, especially if they used any of the available programs. For example, the PPP loan may be forgiven if they used 60% of it to meet employee payroll costs. As a tax preparer, it’s essential for you to stay on top of the latest tax developments so you can educate your clients.

In Conclusion

Set your clients up for success and increase client loyalty by being fully prepared for tax season. Educate them and help future-proof their business by preparing them for a successful tax filing season.