Help Your Self-Employed Clients Proactively Prepare for Tax Season

Jul 29th 2019
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Do you have self-employed clients who hand over boxes of receipts or send you last-minute information so you have to redo their tax return? No wonder long hours and Advil are part of the routine every April.


Preparing for tax season can be extremely challenging, especially if done under pressure and tight deadlines. However, advance prep can cut down on your clients’ stress – and hopefully your own. This is especially important given that stress for small-business owners is reaching new highs because of evolving sales channels and increasing tax complexities, so taking steps to control and reduce stress is just good business. 

Since we’re well ahead of the 2020 tax season, this is a prime time to help clients with strategies to manage their tax preparation effectively.

Help Your Clients Adopt Good Record-Keeping Habits

Filing a tax return can be one of the most complicated financial matters your self-employed clients handle each year. Complex codes, room for interpretation, and different rules for a variety of situations can make filing an involved process that truly benefits from your expertise and guidance.

They look to you for tax therapy! Encourage them to record all their deductible expenses throughout the year. If your clients make a habit of recording these expenses monthly, they will avoid the last-minute panic of digging through drawers or bank statements to gather receipts and documentation.

Even better, they can develop the habit of recording these deductibles on the spot when these expenses are paid. This way, they’ll also become more financially aware and improve their money management.

Article after article shows that lack of cash is one of the main reasons why businesses fail. By tracking business expenses daily, your clients can also control costs, see what they’re spending their money on, and exactly how much they’re spending. These daily tallies become their gauge to know whether they’re over or under their monthly budget.

Understandably, solopreneurs wear many hats and tracking business expenses may not be a priority. But if you point out the time saved and other benefits of this healthy-business habit, your clients will come out well ahead at tax time.

The Advantage of Regular Profit and Loss Reports

If your clients are new to self-employment, they may not be running key financial reports that give them valuable perspective on their business growth and development. Often, people who go into business for themselves are passionate about their goods and services, but not always strong when it comes to monitoring financials.

For example, running a regular Profit and Loss Report (P&L) will provide clarity on their total Income and total expenses in a specific period of time. This report, also referred to as an Income Statement or Income & Expense Statement is likely the one you’ll use primarily for preparing your clients’ taxes. Because it shows your clients’ net profit (or loss) based on their income and expenses, it can help them come up with some cost-cutting strategies.

If your client is a cash-basis taxpayer, meaning she or he pays taxes on income when it’s received, and deducts expenses when they’re paid, make sure they run the P&L based on income collected rather than income billed.

It’s also a good practice for your clients to review the numbers after they enter them in their P&L report. Specifically, they should check for monthly income that is unusually high or low. This may result from forgetting to record a receipt or accidentally recording income twice.

Also help them scan their expenses to make sure they’ve accurately categorized them. Your clients can only get money back if they track, categorize, and disclose these business expenses. Failure to keep accurate records means that they leave hard-earned cash in the hands of the tax man.

Create a Designated Tax Prep File

When things are in place, order prevails and stress is minimized! Professional organizers are in demand because life and business get hectic, so step into that role for a moment and suggest creating a designated place for all of the paperwork, tax records and other important documents your clients will need for tax time so that nothing gets misplaced.

Searching for missing files and records can be highly stressful and makes tax season even more onerous for your clients and yourself by association. If your clients think they’re short a form, recommend they review the ones they need for filing. This can be complex, so your guidance will help with navigating the requirements. For example, if your client is a small business who pays contractors, they’ll need to file a Form 1099 as part of their taxes. These forms must be ordered from the IRS and submitted early to the IRS by January 31, whether they file electronically or by mail.

Remind them that the IRS receives a copy of most tax forms, so the figures are a crucial part of preparing a complete and accurate return.

Your clients may also realize they didn’t do a great job of staying organized last year. If so, now is a good time to set them up to do better for the 2019 tax year.

Final Word on Incentives

Tax rules can work in your clients’ favor. More than regulations, many of them are deductions that the government wants to incentivize.

Your clients may be able to contribute more to their health savings account or retirement after year-end, and take the deduction on their 2019 return. Make sure they are making the most of their deductions, which is a real win – so you can put away that Advil.

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