One of the hardest decisions any business owner makes will be choosing which accounting software to use. This question can get even more difficult when you try to determine the software that’s also best for your tax preparation needs. Let’s look at some of the features of accounting software that you should consider for your specific needs.
One of the most important aspects of tax preparation, especially for small businesses, is having all your expenses accurately documented and properly categorized.
For example, meals and entertainment can only be claimed at 50%, whereas operational expenses (such as office supplies, rent, or lease payments) can be 100% deducted from your top line revenue. Therefore, accounting software that provides adequate categorization and separation of expenses should be considered. For certain businesses that need to track a fleet of service vehicles, including mileage and depreciation, a more robust tracking system needs to be included in the accounting software.
Without these categorizations, expenses claimed on your tax return will be difficult and time-consuming to collect, analyze, and add up. It will also be hard for you to provide cohesive proof if you are ever audited.
Another important part of accounting software that can have a significant impact on your tax preparation is the software’s ability to automate payroll. Most accounting software systems (whether they are cloud-based or using software located in-house) charge extra fees for their payroll module. It’s recommended that any business with over 3 employees should utilize some sort of accounting payroll module. There are plenty of options available, with capabilities ranging from five employees to thousands. Choose one that suits the size of your company.
Payroll accounting software enables a company to accurately track employee costs, tax deductions, and other liabilities (such as Medicare, insurance, or 401(k) situations). Without such tracking, tax preparation can be very costly with a professional accountant.
At the end of the day, the decision you make will be based on your budget, your needs, and the features of the accounting software. Yet, if two software packages are similar, but one offers tax preparation integration, that one would be the clear winner. The two most popular accounting software companies are Intuit and Sage.
Intuit produces the Quickbooks lineup of products, which includes a TurboTax tax preparation software add-on. Sage also has a tax preparation feature integrated into product. Both of these products offer a solid accounting suite with payroll and tax integration, as well as good expense tracking and categorization.
There are other cloud-based systems (such as Freshbooks, Kashoo, Zoho, Outright, and Xero), which provide basic accounting software that is easy to navigate. These options offer the convenience of online access and provide enough functionality for most small businesses. However, many of them do not have tax preparation integration, which may end up costing you more in the long run with your CPA or tax professional.