There is less than a month to go until the April 15 tax filing deadline. If you have not yet filed your U.S. tax return, now is the time to get it done!
Gather your documents
By now you should have most—if not all—of your tax documents. Employers were required to send W-2s by the end of January. Bank interest information (whether earned from a savings account or paid on a mortgage) should have been sent to you by the end of January as well. Brokerage information usually comes mid-February, although sometimes this can be delayed until mid-March. Hopefully you followed our earlier advice to get organized so you have it all in one place; if not, it is never too late to start!
Your first task is to review your documents to see what you have and what is still pending. If there are certain documents you have not yet received, contact the issuer now and ask for an additional copy. Make sure they have your current address. The most common reason folks do not receive tax documents promptly is because the issuer has outdated address information. Better yet, ask them to send your documents via e-mail so you have them right away. (But still check that they have your updated address, just to be safe, even if you no longer work there or have a business relationship with that company.)
The business tax filing deadline is March 15, so you should have all your K-1s by now if you expect to receive any. If the issuing entity asked for an extension of the filing deadline, though, you could receive these K-1s as late as September. You should be informed if that is the case, so you should follow up if any K-1s are still pending and you have not heard about a later expected issue date.
Compile income and expense data
If you own a small business, are a freelancer or independent contractor, or otherwise participate in the gig economy, you have some extra work to do. Anyone who works for themselves, whether as a part-time side hustle or your main focus, will need to report their income and expenses from that activity. You must still report all self-employment income, even if you do not receive a 1099, if you bring in at least $400 before expenses.
Depending on your system for tracking your business finances, this could be very simple or very complex. Ideally, you keep the system updated throughout the year so there is never much additional work to do. Of course, the reality is that some folks procrastinate until a week before the tax filing deadline to compile their information for the entire prior year. Please do not be one of them. Even if you need to go through an entire year of activity, start now rather than waiting until mid-April.
For those of you who need to comb through a lot of financial activity to summarize your income and expenses, I suggest one of two main approaches:
Account approach. If you use several accounts for your business—for example, a checking account, savings account, and multiple credit cards—take it one account at a time. Go through your first credit card. The next day, go through your next credit card. Continue this process, going through no more than one account each day to avoid getting overwhelmed. Before you know it, you will be done.
Calendar approach. The calendar approach works better than the account approach if you have fewer accounts, but more activity. Rather than going through one account at a time, go through one month at a time. Going through one month of activity each day breaks down your project into several smaller, manageable tasks and will have you ready to prepare your tax return in less than two weeks.
What does it mean to “go through” an account or a month? This will vary based on your particular system, but it involves reviewing your transactions and categorizing them appropriately.
If you use Quickbooks Online, for example, this means either (1) manually entering the transactions, and categorizing them as you go; or (2) downloading the transactions from your bank or credit card account, and categorizing them as you add them to the account register. If your preferred category name does not exist, you can add it to the list of categories from the transaction screen or the chart of accounts. Be sure to reconcile your Quickbooks balances to your actual bank and credit card balances to ensure accuracy.
If you are not sure which Quickbooks option is right for you, start small. You can always upgrade later. The “Essentials” option is more than enough for most businesses, and even the “Simple Start” option is fine for many.
On the other hand, perhaps you only have a handful of transactions each month, so spending the money on a monthly Quickbooks subscription simply does not make sense. A simple spreadsheet would be enough. Business owners must track their financial activity, but how they do so is completely up to them! For a simple spreadsheet, just list your transactions in chronological order. Next to the date, list the vendor, amount, a brief description for the purpose of the transaction, and the tax category. When finished, add up the totals for each tax category. (Pivot tables make this very easy!)
Our Bookkeeping Template for Small Businesses does this work for you! It comes complete with instructions, built-in pivot tables, drop-down lists of common tax categories with links to explanations, and options for adding your own categories.
Obtain software or meet with your tax pro
Once you have all your documents, and have compiled your income and expenses for your small business or freelance/independent work, you are ready to begin preparing your tax return. The more lead time you have before the deadline, the better.
If you self-prepare your tax return, select a reputable software program. Using the same software program as last year typically provides efficiencies by carrying over your prior-year data. You might also be eligible to prepare and file your taxes for free.
If you work with a professional to file your taxes, make sure they have all your documents and data. Speaking as a tax pro, though, please do them (and yourself!) a favor and do not wait until just a few days before the deadline to send them your documents. For example, if you have all your W-2s but are just waiting on a K-1, get them your W-2s early. Sending your information early (or in tranches as it trickles in) allows them to complete the vast majority of your tax return in advance, so when the last piece of the puzzle arrives little extra effort is needed to finalize your return.
As a last resort, you can always ask for additional time to file your return. Be aware, though, that an extension of time to file is not an extension of time to pay. I will go into more details about extensions in a later article, but the best approach is to file on time if at all possible. Follow the steps above to beat the deadline!
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