Your future self will thank you. How to make your tax filing easier next year.

​Tl;dr: Start now to make filing easier next year. Set up processes that build the things you need right into your daily workflows, including the collection of W-9s. Review the process for categorizing transactions and how they flow into your GL accounts. The cleaner your data is at the transaction level, the easier it will be at tax time. 

Feeling exhausted from hitting last week’s filing date? Yeah, lots of accountants are. How about making changes now so that you NEVER have to go through that again? Here’s what I’ve learned: As soon as you file for this year, recognize that your work is just beginning for next year. Get the right structure in place now and data will flow smoothly at tax time. Plus, when data is more organized and available in real time, it plays a broader role within the company, so you’ll benefit all year round, not just during tax season.

The tax burden for finance teams.

I used to dread tax time, and I know I’m not alone. The IRS estimates that the average time businesses spend preparing to file taxes is 21 hours, with the biggest burden lying in record keeping. We all have stories about late nights, missing info, and stressful calls with tax accountants. Even with a tax accountant, finance teams must produce the right information and have accompanying source documents. And let’s face it, there’s a lot of information. Just some of the elements that must be turned over to an accountant could include:

• Legal and professional fees.
• Interest expense and income.
• Stock compensation.
• Meals and entertainment expenses.
• Officers’ life insurance.
• Prepaid expenses.
• Deferred revenue.
• Accrued compensation.

In addition, Form 1099 needs to be sent to all contractors who were paid more than $600 and filed with the IRS.

Workflows for smoother tax preparation.

Here are some tips I’ve picked up to help make tax time easier.

Know what you need. Now is the time to get your financial ducks in a row. Your tax accountant can provide a list of what you need, so instead of thinking, “I’ll deal with this later” (we’ve all been there), you can make these items a priority before they become an emergency.

Be realistic about timelines. Assess the work that must be completed to determine if you can complete your filings by the deadline. If there is any doubt, file for an extension to avoid possible penalties. An extension requires some work in advance, since you will have to send in the trial balance which determines if you have to make estimated payments before the extended due date. You may also have to make estimated payments for state taxes, depending on the states you’re registered in.

Set up reporting. Reporting functions should coincide with what your tax accountant needs. Make sure your accounting systems can pull data from all sources, including subsidiaries, for comprehensive reporting without manual effort. If reports are available in real time, the information required can be pulled on demand whenever it’s needed.

Review your categorization process. Ultimately, a smooth tax season comes down to being organized at the transaction level. A miscategorized transaction may not seem serious at the time, but its effects will be felt at tax season. For example, an incorrectly categorized charity donation may mean a missed opportunity for a deduction, so each transaction must be coded correctly so it flows smoothly into the correct ledger entry. To make this process flow more smoothly:

• Avoid vague categories like “miscellaneous.”
• Train staff on categorizations, and their importance. I have to remind myself often that employees don’t realize the downstream implications of an incorrect category, and are just trying to finish a spend request as quickly as they can
• Configure reimbursement and expense request systems so only relevant categories are available to employees. The fewer choices, the better.
• Use a system that learns from previous transactions to recommend fields for new transactions.

Enforce W-9 submission up front. 1099s used to be a slog. I’ve learned to avoid last-minute panics by requiring contractors to submit a W-9 before they can be paid. Then, I have all the relevant details on hand, and will only need to run a report to see who should receive a 1099.

Automate document collection. I wasn’t surprised when Airbase’s survey of finance professionals discovered that gathering documents to create an audit trail is one of the most time-consuming manual tasks. I’m lucky that the Airbase platform enforces receipt compliance and automatically files relevant documents with a transaction record, so I don’t have to spend precious hours tracking down receipts.

Real-time, properly categorized data is not only a lifesaver at tax time, it can also help with budgeting, forecasting, and cash-flow optimization all year round.

Tax time doesn’t have to be a nightmare. Don’t just take my word for it — let Airbase show you how we can help you organize your AP for tax season.