Putting Your IRS Forms Under the Microscope
Once your, IRS forms are completed you'll want to examine the income and expenses you've itemized on your return. While it's true that the more expenses you have the lower your taxes will be, your taxes are only reduced because your income was reduced. For example, you'd have more money in your pocket if your business had $1,000 taxable income after expenses and you owed $250 taxes than you would if you had a $2,000 loss on which you owed no taxes. Sure, tax deductions are great and you should take advantage of those you can while you are completing your IRS tax forms, but, except for the possible exception of depreciation, you have to spend money to get the deduction.
When you examine the IRS tax forms, especially IRS Schedule C, that you prepared for your federal tax return, consider these issues:
- Are you making enough to meet your expenses (did you have a profit or loss on Schedule C)? If not, you'll either have to increase your income or reduce your expenses - ideally, a combination of the two.
- Which Schedule C expense categories had the highest total expense?
- Within each expense category, which specific items accounted for the largest expenses you reported on your IRS forms?
- Which specific expenditures within each category listed on your IRS forms (Schedule C) can you actually control to reduce your expenses? To what extent can you control them, and what would you have to do to reduce these expenses?
- Will the actions you need to take to reduce your expenses negatively impact your income? If so, will the projected impact on your revenues be greater than what you would save in expenses?
- Do the figures on your IRS forms show a net return on your advertising expenses? If not, do you either need to eliminate the advertising outlets that aren't pulling their weight or make other adjustments, such as reducing the size of your ads, that will reduce your costs without reducing your exposure? Can you leverage low cost Internet marketing techniques more effectively and save money?
- Did you keep sufficient records to document your auto mileage, depreciation and any deductions for the business use of your home on your IRS tax forms? Were your records kept in good order throughout the course of the year so that you didn't have to scramble to put them together at the last minute while you filling out your IRS forms?
- If you use business bookkeeping software, like QuickBooks, were you able to account accurately for any out-of-pocket expenses you needed to account for on your IRS tax forms that weren't recorded in the software? Do you need to improve your methods for tracking such expenses, or increase the frequency with which you update your books?
- If you made estimated tax payments over the year and still owe a hefty sum, do you need to adjust the amount you set aside for those tax payments for the upcoming tax year?
- If you didn't make estimated tax payments for this tax year, how much in the way of interest and penalties do you owe (IRS forms are available for this calculation)? Interest and penalties is an expense that can be eliminated completely next year by filing your IRS 1040ES forms on time and making sufficient estimated payments over the course of the year ahead.
- Did you keep enough money in your bank account to pay both your taxes due now and your first estimated tax payment for this tax year? Remember, they're both due on the same date, which can be a lot of money to have to come up with at once. What can be done to make sure you don't run into this same problem again next April?
- Are you completing your IRS tax forms now only because you procrastinated? If so, this may be an annual occurrence for you. Be sure to make it a point to get an early start on your IRS forms next year.
Tips to Keep on Top of the Tax Preparation Chore
Even if you use tax software, there's no point in getting into a last minute rush to get your taxes done. While I use TurboTax to prepare my own taxes, I make it a point to install the software as early in the year as it is available. Any time I have a few minutes spare time, I can open my IRS tax forms and make adjustments. If you use tax software you'll also want to be sure you check for the manufacturer's latest updates each time you launch the program so you'll have an accurate idea of how much you owe or how much is coming back and you have any revisions to IRS forms that may have been made.
As a services provider to other businesses, most of my income is reported by my clients on a IRS 1099-Misc form. Since I know by January 1 what my income and expenses will be, I don't wait for the 1099s to arrive to start inputting the information on my IRS tax forms. As I start receiving my 1099s I check them for accuracy against my return in progress.
Once I know my exact tax liability, I make a decision on when I'll print and mail or e-File my return, based on whether I owe or I'm due a refund. Of course, if I have a refund coming, I'll file all the necessary IRS forms as early as possible. If I owe the IRS more money, I'll file within a week of the deadline. But my IRS tax forms will have already been completed at least four weeks earlier. I want the luxury of deciding when to file my taxes to my advantage rather than have the IRS looming over my head.
Seize the Opportunity that Your IRS Forms Present
Tax time can be a great time to make some changes to your business that will benefit you in the year ahead. Examine your IRS tax forms that you submit with your federal tax return to make the most of it in order to improve your business' bottom line.
By completing tasks routinely throughout the year, you'll probably find that the chore doesn't seem as bad as it used to and you'll be far less inclined to be in the same jam your in now, with all those IRS forms staring you in the face and keeping your from getting a good night's sleep. Turn tax time into an opportunity. Get whatever IRS publications, you need to understand you you can learn from all of the IRS forms you need to fill out at tax time. You'll be glad you did!
