Small Business 101: Law Firm Tax-Preparation Tips
Work tends to slow down this time of year, with everyone celebrating Festivus and all, so it's a good time to get ready for the inevitable -- tax season.
If your tax year coincides with the calendar year, this is an especially important time because the clock is ticking. On December 31, at 11:59 p.m., you won't turn into a pumpkin, but your financial books will be officially closed.
Here are some small law firm tax-preparation tips to keep your holiday, and tax season, a little less stressful:
1. Know Your Deadlines.
Brush up on the basics and make sure you -- and your accountant -- are on the same page as far as deadlines. Does your fiscal year coincide with the calendar year? Or did you set your own fiscal year? Are you on an accrual or cash basis of accounting? These answers will determine when your tax returns are due, and what income you report. Also remember there are additional filings if you are an LP or LLP.
2. Stay (or Get) Organized.
Hopefully you've been keeping accurate financial records throughout the year, but if not, this is the time to get organized. When you meet with your accountant you will likely need the following: previous tax returns, income statement, balance sheet, and receipts related to business expenses. Invest in folders and try to avoid being the person who goes to their accountant with a plastic bag full of crumpled receipts.
Discuss with your accountant the possible deductions that you may be able to take. Do you work from home? Your home office may qualify for a deduction. If you are in the giving mood, make that charitable contribution before the new year to receive the benefit of a tax deduction. Finally, if you are thinking about investing in new office equipment, now may be a great time between the deductibility and holiday sales.
4. Employer Responsibilities.
If you have employees, or work with independent contractors, your tax responsibilities extend beyond yourself. For employees, you will need to send out W-2 forms by January 31, and you are responsible for filing W-2s and your W-3 form with the Social Security Administration.
If you work with independent contractors, and paid them a minimum of $600 during the fiscal year, you will need to issue the contractor a Form 1099-MISC.
5. Reduce Income.
Since you're in the midst of preparing your income taxes, find ways to reduce your income. Making a contribution to your retirement plans -- such as a Roth IRA or 401(k) -- are great ways to reduce taxable income and plan for the future.
You don't have to go through this alone; if you need additional resources, the IRS.gov website has many helpful publications. The most important thing is to be organized, mark your calendar and keep track of all your paperwork and tax season will be a breeze.
Editor's Note, February 21, 2017: This article was first published in December, 2013. It has since been updated.
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- 5 Things You May Be Able to Deduct From Your Firm's Tax Bill (FindLaw's Strategist)
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