Xero managing Director, Gary Turner, explains how to take the pain out of tax returns by making bookkeeping software do most of the hard work.
With the year-end fast approaching, many small business owners and directors once again need to think about filing their individual returns to IRS.
While there’s no arguing they’re a necessary evil, doing the books is time-consuming, costly, and will invariably result in long hours spent toiling away at the last minute. Which is precisely why there’s good reason for even the most inexperienced start-ups to look to cloud computing to get the books in order and take the stress out of future returns.
Using online accounting platforms, even businesses or entrepreneurs operating on a tight budget can move away from shoe-box filing systems and ad hoc number crunching, which will not only help when it comes to submitting a tax return, but also provide daily insight.
Rather than manually noting down finance-related information in notebooks or spreadsheets and then checking in with the accountant when the deadline is looming, online accounting software cuts down otherwise time-consuming bookkeeping processes by making it easier to keep the books up-to-date and available in a secure, shared place.
In particular, the fact that the software can automatically download bank statement data via automatic bank feeds means users don’t need to spend hours adding in transactions manually.
As well as taking back financial control and answerving a fine from the tax man for filing a return too late, a move to online accounting can also positively affect the relationship small business owners and managers have with their accountants and enable them to benefit from more strategic tax and other financial advice.
With their financial data held securely in the cloud, the business owner can invite their accountant to view the books at any time – even when they are on the road – via their smartphones and tablets. Rather than limiting contact to once a year meetings and phone calls, the annual race against-the-clock instead becomes a more fruitful monthly or quarterly health-check.
With more time to act and improved data at their fingertips, the accountant will also be in a stronger position to advise the business on how it could improve performance. This may include, for instance, establishing that the company can afford to recruit the new member of staff it needs or can find enough funds to invest in a new piece of equipment.
Aside from being in a stronger position to make more of any tax breaks, the business-driven tools and financial connectivity inherent in online accounting platforms has also been shown to reap dividends in other ways too. This can include, for example, helping entrepreneurs and other small business users to bring down debtor days, stay on top of cash flow and make business decisions based on up-to-date financial information and forecasts.
Instead of dealing with a post-Christmas bookkeeping hangover or a hefty accountant’s bill, when future tax deadlines come around, owners and directors that take their accounts to the cloud will have gained more time and budget to spend on improving their overall bottom line.
Cloud based accounting system will also produce a CD of all your transactions complete with scanned images of the invoice and cancelled check as a by-product of the process. Also, the entire process is traceable bank to your bank account. The bank account is where the IRS starts when doing an audit. When the tax man comes calling, just hand them the CD because you know your system has the images to support your banking transactions. It’s a fantastic benefit of cloud accounting.
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Paul Barrett, CPA