Tax Season Tips: Resolve to Make It Easier Next Year

Posted by on January 29, 2013 in Financial Services [ 0 Comments ]

business taxesNow that it’s January, most of us are relieved that the year-end inventory count is over and we’re resolving to make the process less stressful next year.

This is all well and good, but a New Year’s Resolution about taxes might not be as clear cut as heading back to the gym. Here are three steps to starting off on the right foot to make taxes easier next year.

Related: Business Tax Deductions You Don’t Want to Miss This Year

1. Know the numbers you need to track

Year end inventory is much easier if you aren’t scrambling to recount numbers that weren’t tracked well or digging up data you didn’t know you needed. While all the numbers needed for tax season will be found in your standard records, it can be helpful to identify these and keep them in mind throughout the year. These are:

  • Cost of finished goods – This includes items purchased from others or assembled yourself.
  • Cost of works in progress – These are products in an unfinished state that haven’t been sold or a customer hasn’t agreed to purchase.
  • Cost of raw materials and supplies – In addition to parts, this can include incurred costs, like shipping containers for transport.
  • Cost of labor – This includes costs paid to workers to get a sellable product on your shelves.

Related: Make the process easier with bookkeeping software

If you add all of these costs together and subtract the price of your inventory at the end of the year, you’ll have your Cost of Goods Sold (COGS).

It’s important to point out the items you’ve agreed to buy from a vendor, but haven’t been paid for or delivered aren’t tallied here. This also goes for items a customer has agreed to buy from you, but hasn’t been paid for or delivered. Keep this nuance in mind to better sort your data throughout the year.

2. Streamline your record keeping practices

The proverbial shoebox for receipts can too often be literal. It’s easy to rely on organizational methods that are convenient in the moment, but become painful to sort later.

Some small business owners use a mix of accounting software and spreadsheets to manage inventory. While this can work on a small scale, it can lack efficiency and result in only looking at your totals during accounting seasons. Investing in an inventory management application can be a good upgrade.

Related: Purchase your inventory management software from one of our hand-picked vendors

A good inventory management application will make tracking inventory a simple process and act as a dashboard for your operations. The nice thing is that it will guide you in tracking the right information and keep it in one place when tax time comes.

All inventory management applications should allow you to easily export your data and give it to your accountant or upload it to your own accounting software.

3. Optimize your inventory habits

Finally, better management of your physical goods can make tax time easier. If your  business is still young, you’re likely discovering that more inventory isn’t always better. High cost items might be tying up cash if they aren’t selling and valuable supplies might have been used to produce goods with less than desirable turnover.

There may be a tax benefit to reducing inventory or an incentive to purchase equipment for overall business growth. Taking time to look at this early will save you from scrambling to check off a longer to do list at the end of the year.

Taxes are easier if you keep in mind what you need to track during the year. A good inventory management system, aasic awareness of the numbers you’re responsible for and organized record keeping will reduce the workload for both you and your accountant later.

Bio: Stitch Labs provides an online  simple inventory management application designed specifically for small businesses to manage order fulfillment, invoicing, expense reporting and business analytics.

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