Tax season is here and filing your company return accurately and on time will require careful planning. Preparing in a timely way can help you avoid potential costly penalties for late or flawed returns. For example, a failure-to-file penalty from the Internal Revenue Service (IRS) is 5% of the tax owed after the due date for each month or part of a month up to 25%. Interest charges are in addition to the penalties.
Use this timeline to simplify your tax prep process and help you meet your important deadlines.
One or two months out
- Complete bookkeeping tasks. Enter expenditures in your records and reconcile bank accounts and credit cards, separate business and personal expenses, and classify business expenses.
- Identify tasks and to-dos. Identify what you need to collect, calculate or get from other people. For each item or task, consider all the steps that are involved; for example, you may need to gather information such as an employer identification number (EIN) from vendors or other outside sources.
- Review your expenses. Check your accounts and make sure you have a record of all payments that may be eligible as an expense. This includes things you may have paid cash for and business expenses that you mistakenly covered with personal funds. Work with your tax advisor to properly handle these personal expenditures since you may need to designate them as a loan to your business.
- Set deadlines. Know what is due when, and make sure everyone responsible for gathering documentation and filling out forms knows the deadlines. Setting a completion date for each task will give you an immediate sense of when you need to get started, so nothing is left to the last minute.
- Set appointments. If you work with an outside accountant or tax preparer, set aside time with them to work on your return.
- Gather supplies. Review what you used last year, and stock up on what you need to replenish, including forms, folders, file storage boxes, paper clips and any other essentials to stay organized.
Three weeks out
- Review documentation requests. Make sure that you have received the documentation you need from financial institutions, vendors and any other partners. Send them follow-up requests for anything that is outstanding.
- Check in with your tax preparer. Let them know when they will receive materials from you, and ask if there is anything else they need from you to get started.
- Confirm all information. Look at all the information you plan to submit to confirm it is complete and accurate. This will give you a chance to catch any errors and correct them prior to filing.
One week out
- Finalize your return or check in with your preparer to be sure it is on track. In 2021, S-corporation and partnership returns are due on March 15, while C-corporation returns are due April 15, assuming you operate on a calendar year. The IRS has a complete calendar of 2021 deadlines.
- If necessary, request an extension. Despite your best efforts, you may not be ready to file. Talk with your advisor about obtaining an extension. It is better to file for an extension and get it right than to file an incorrect return that needs to be amended. If you need an extension, work with your tax advisor to figure out your maximum potential tax bill and pay that to avoid being subject to penalties for failure to pay. Being as close as possible to the actual figure is ideal, but overpaying is better than underpaying.
Get ready for next year
It is never too early to start your tax prep. Review this year’s process to flag what could have gone more smoothly. And, make sure to have a system in place to organize all your receipts and forms to simplify the filing of next year’s return.
This information is only provided for general informational purposes, and should not be considered as offering individualized tax advice. Please consult your tax advisor on specific issues related to your tax situation.