It’s late October and you suddenly realize that the end of the year is creeping up on you. Chills run down your spine as streams of unfiled receipts flash before your eyes. Goosebumps prickle your skin as you remember that tax laws changed this year, and you are not sure what that means for your interior design business. How do you stop your looming tax filing from becoming a horror show? The good news, it is not too late to restore order and properly prepare your books for tax time. This article will outline the necessary steps to make your upcoming and future tax filings a smooth process, as you take control of your business’s financial future.
The first step to preparing for your annual tax filing is hiring a professional accountant that is knowledgeable about the interior design business and the tax implications of your legal entity structure. This person will not only help guide your business strategy, of which tax planning is an integral part, they will also help prepare the business’s tax filing. In order to do so, you must provide them with all relevant records pertaining to your business expenses, such as categorized receipts, bank statements, and additional financial documents necessary to proving the legitimacy of your business and the money spent and earned by the business during the course of the year and possibly years prior. You should be keeping organized, electronic records and reconciling accounts payable and receivables monthly. Design Manager makes it incredibly easy to record this data and keep it organized, which is essential for busy interior designers who have specific bookkeeping needs.
Preparing Your Books and Filling in the Blanks
As you organize your business records by month and uncover missing documentation, open balances, and other loose ends, follow up with all relevant parties to recover the necessary information. Begin this process as early as possible, because it can take a long time to get the attention of vendors, clients, and other external parties, especially regarding inquiries into past events, and even more so as the tax deadline approaches. It is important to be diligent and to keep a record of your follow-up attempts so as to not overlook important missing data the second time around. These records of follow-up attempts will also be invaluable should you have to take or defend your business from legal recourse.
If your business has any loans outstanding, request a year-end report from the lender. Likewise, if your business has investors, be prepared to provide a year-end statement to them, in which case, you need to be organized throughout the year and close your books as early as possible. Even if your investors are not requesting timely year-end reports, holding yourself to a high standard will help protect your business from potential legal issues down the line.
Interior designers who have a resale license need to take additional measures in their bookkeeping practices and tax filing process. Make sure to hire an accountant who is familiar with your state’s resale laws, and be prepared to provide a copy of your license. Profits from resale are taxable, so it is especially important to keep documentation of your wholesale and resale transactions, another crucial function made simple by Design Manager. If you resell goods on an external platform such as ebay or Sotheby’s Home, be aware that third-party platforms are required by the IRS to file a 1099-K form for all users who meet certain transaction thresholds, making it easier for the IRS to hold resellers accountable.
Properly classifying capital assets is another area where the right accountant can help your business save money and avoid legal entanglements. Equipment, like computers and office furniture, are treated as fixed assets and are eligible for a multi-year tax write-off, as is any real estate owned in the name of your business. Other supply purchases may be regarded as short-term, and have a different tax benefit. Tax laws often change from year to year, which is why consulting with a tax professional is a top priority in smart business planning.
One area of federal tax law that changes drastically from year to year is healthcare. If your business is currently, or is considering offering healthcare to employees, you may need to hire a specialist to inform you of the latest changes to the law and help you plan a solution that will remain legally and financially viable in the near to medium term.
One Last Thing
Don’t let charitable donations made in the name of your business be an afterthought that springs to mind post-April 15. Whether your business sponsored a little league team, donated services to be auctioned or bought a table at an event — charitable donations are tax deductible. If your business did not make any public good deeds of this nature in 2018, consider changing that in the year to come. Participating in charitable causes is not only good for the soul, it is also a great way to connect with people and other businesses in your community.
If you have made it this far down the list, then there is only one step left: find a copy of last year’s return and you should be ready to file — early! If you are still working on any of the above, just remember that organization is the key to an easy and accurate tax filing. Interior design firms have a lot more details to track than the average business. Using a bookkeeping software that is designed to meet the needs of the industry, like Design Manager, makes organization simple and will help make tax filing a smooth process going forward. If you are already using Design Manager, click here for a reminder of how to run a year-end report that includes every last detail you, your accountant, and the government will need to know. If not, sign up for a free trial today.