TAX TALK

TAX FAQ

Make Your End-of-Year Tax Preparation Easier

By Brea Harper

It’s the 4th quarter and you know what that means … end-of-theyear tax preparation. If you’re like a lot people, you probably aren’t looking forward to it. It’s yet another “thing” you need to add to your to-do list. However, procrastination and an ardent dislike of taxes won’t make it go away. So, you can quit procrastinating and instead be prepared, which will make the whole ordeal that much easier and over with faster.

While it might seem like a mountain of work and paperwork is ahead, simply start and break it down into slow, steady do-able chunks, which will make it seem less daunting. You won’t be able to close the books until the end of December, but you can get out ahead of it.

As property owners you may or may not have a full-time bookkeeper. Small mom-and-pop property owners (five properties or less) are less likely to have a full-time bookkeeper and may even hire the entire property management out to a management company. If you’re one of the lucky ones that can afford to farm it out – wonderful. If not, don’t be discouraged.

An important tip and safety precaution: always use a professional tax preparer and avoid doing it yourself. The IRS and California Franchise Tax Board are less likely to audit business owners who have used professional services (although not common, the IRS does sometimes randomly pull taxes and audit them). Part of getting through any kind of audit without it becoming an agonizing experience is simple: be organized. Being organized also makes it much easier to close the books.

So, if you have been organized all year long then end-of-year tax preparation won’t be difficult. The old fashioned way to handle receipts is to store paper receipts, since in many cases you will receive paper ones. Digitalization of all receipts makes it easier. You can create a tax folder for the year on your computer and download digital invoices and receipts into separate files. Add to the folder all year long and don’t leave it to the last minute, as that will create a much bigger job. If you have paper receipts, scan them in. Word to

the wise, please backup your digital records onto an outside server. Google offers extra storage for $1.99 a month, and it’s the best digital insurance you will ever pay for peace of mind.

Make sure you have a separate business account for everything related to your property owner transactions. Avoid using personal accounts and intermingling funds. Even for transactions like gas purchases, invest in a gas station credit card. Thus, when you go to figure out your expenses, you won’t be digging across multiple accounts and creating extra, unnecessary work.

If you’re paying quarterlies, make sure you pay all of them on time. Business expenses can fluctuate and perhaps your quarterly payments no longer reflect either the amount of money you’ve made or a decrease in profits. You can adjust your payments, but if you didn’t do it correctly and you owe, then you can be penalized.

Property owners who have employees, need to ensure they have contributed to all of the retirement accounts, social security, etc. Make sure all expenses are tracked when it comes to healthcare contributions and insurance plans. Put all of your expense records, including utility payments, office expenses, entertainment, and more, into place.

Research and ensure you know the proper percentages for deductions and how much office space (if you work from home) can be deducted. Home office space guidelines are strict. You can measure your home office and take the deduction that way (it’s the most accurate versus guessing). Unless you’ve moved, this deduction will remain the same from year to year. A surprising fact: your home office cannot be used by your family and still be considered professional office space. Don’t place anything other than business-related items in your space. Personal items including beds can nullify the deduction.

If you have salaried employees, then it will be easy to calculate their salaries for their W-4s. You can get these prepared in advance. Non-salaried employees whose hours fluctuate will have to wait until after December 31st to be accurately reflected on the W-4 forms.

You can prepare your profit and loss sheet in advance. Figure out your categories and begin filling in the amounts. Now if you haven’t been doing bookkeeping in advance, you can start at the beginning of the 4th quarter to be on top of everything by the time you close the books. Then when it’s time to finish, you have far less work to do. Next year, you can begin doing monthly tracking, and then it will be even easier to close the books for 2023.

The best advice when it comes to advanced tax preparation: eat the elephant one piece at a time. In other words, procrastination only makes the job harder.

Brea Harper is a business owner and writer.