Tax preparation is one of the most stressful and time-consuming activities for business owners, freelancers, and individuals. Be it personal taxes or business management, Accuracy in numbers is the key. Mistakes may lead to penalties, audits, and missed opportunities in deductions. Traditionally, tax preparation involves the manual calculation of expenses, income, and tax liabilities, which takes hours, even days, of work. However, modern technology makes all this easy, accurate, and less stressful.
In this article, we look at the benefits you stand to achieve in making use of accounting software in preparing your taxes and how it may help you save time, money, and effort. Be it a small business or just starting with taxes, accounting software could turn out to be a saviour.
Table of Contents
Saves Time and Reduces Stress
One of the most noticeable advantages of using accounting software is saving a lot of time. Set apart from having accounting software, tax preparation usually means looking through stacks and stacks of papers, manually tallying up revenues and expenses, and then completing the forms on one’s behalf. This often is a rather time-consuming, monotonous process.
With accounting software, much of this work is automated. It can track your income and expenses throughout the year, and at tax time, all you have to do is run a report, and there, before your eyes, is everything you need to do your taxes. This takes a massive weight off your shoulders and eliminates much of the stress associated with tax preparation.
Tax season used to be a source of anxiety for me, especially when I had multiple clients and plenty of expenses. Preparing my taxes would involve hours of searching for receipts and getting everything organized. Then came the switch to QuickBooks, which altered everything. The software automated all my income and expenses without my input. I did not have to dig through reams of paper, and the time it took me to prepare my taxes was considerably reduced.
Improves Accuracy
Everything is about Accuracy when it comes to taxes. A simple mistake may lead to penalties, fines, or even an audit. The problem is that people are often prone to making errors when handling taxes manually, especially when adding numbers or filling out forms.
Accounting software significantly reduces the likelihood of errors by automating most of your calculations and updating your financial information in real-time. Pre-built applications like Xero, FreshBooks, and QuickBooks will automatically update their systems for tax rates and regulations to ensure you file based on current laws.
The IRS reports that 20% of taxpayers make mistakes on their returns, with common errors being incorrect deductions or math errors. Accounting software minimizes these mistakes by checking your figures as you enter data, making sure everything is accurate before you file.
Maximizes Tax Deductions
Tax deductions can be subtracted from your taxable income, thereby reducing the amount of tax owed. On the other hand, it’s tough to remember all your possible deductions, mainly when operating a small business. This is where accounting software comes in handy: It categorizes and automatically tracks your expenses throughout the year so you can quickly identify and claim all the deductions you qualify for, from business supplies to home office space to vehicle mileage.
Accounting software, for instance, allows the self-employed accountant to have the real-time recording of one’s expenses through organized categorizing to provide easy access while claiming them when it gets to the declaration period. Several such programs, as well, might remind the small business of possible deductions commonly forgotten about or otherwise missed with possible associated losses.
A friend of mine started using FreshBooks for his online store. It tracked every single expense of his, from the cost of shipping to fees for advertising to office supplies. At the end of the year, it automatically totalled up all of his deductions. He saved hundreds of dollars on taxes that he would have otherwise missed by doing everything manually.
Automates Tax Forms
Tax preparation involves more than just income and expense tracking; there are forms to be produced right for filing, and if one does not know the tax code, it gets pretty confusing. Small business owners need to file Schedule C; freelancers will have to provide Form 1099, and employers will have to file Form 941 for payroll taxes. All these forms carry their own set of requirements, and ensuring you’ve completed them correctly is essential to avoid penalties.
Fortunately, accounting software automates the creation of these forms. Most accounting programs, including QuickBooks Online and Xero, let you create the required tax forms with just a few clicks. This makes it so much easier to stay compliant and file your taxes promptly.
Chart: Tax Forms and Accounting Software Features
| Form | Who Needs It? | How Accounting Software Helps |
|---|---|---|
| Schedule C | Small business owners or freelancers | Automatically generates based on income and expenses |
| Form 1099 | Contractors and freelancers | Tracks payments made to independent contractors |
| Form 941 | Employers with employees | Calculates payroll taxes for the year |
| Form 1040 | Individual taxpayers | Fills out tax return based on your financial data |
These are automatically generated; you don’t have to worry about the technical details.
Helps in Tax Planning
Tax filing software can help not only in submitting one’s tax but also in planning for taxes. Most accounting software includes facilities that allow you to prepare for the future based on your current income and expenses while projecting your tax liabilities. This helps you to make proper decisions during the year on the management of your finances to minimize your tax liability.
For instance, some tools, like QuickBooks Tax Planner, permit you to forecast your tax bill throughout the year, given the performance of your business. That way, you can change the way you spend or save to lessen your taxable income and consequently minimize the amount you pay for taxes. This tool is indispensable to anyone earnestly desirous of keeping taxes well within reasonable bounds.
Did You Know?
According to a study by TaxSlayer, 37% of small business owners felt unprepared for tax season simply because they did not plan. With the right accounting software, you are reminded and kept on track to avoid getting caught off guard when it is time for taxes.
Safe Data Storage
Security is, of course, a priority with sensitive financial data. In the past, keeping paper copies of financial documents or using basic spreadsheets could leave you vulnerable to data loss or theft. Modern accounting software offers secure storage, often using cloud technology to keep your information safe.
With cloud-based accounting programs, such as Xero and QuickBooks Online, financial data is maintained on secure servers that are backed up regularly. You do not have to be concerned about losing records from a computer crash or other mishaps. In addition, you can access your financial information at any moment and from any place, making sure it is safe.
I use Xero in my small business and like the idea of going to bed with my financial information securely stored in the cloud. I will not need to worry when hard drives crash or when important data goes missing; all your data is backed up safely, and it can be accessed with any device.
Replaces Accountants
Of course, hiring an accountant can be a good thing, especially in the most complex tax situations. Still, many freelancers and small business owners cut costs by preparing their taxes with accounting software. If your financial situation is pretty simple, then accounting software can handle most of the heavy lifting.
Some programs, like QuickBooks Self-Employed, have been designed specifically for freelancers and solo business owners to manage their income and expenses and file their taxes without an accountant. And when you do have to hire help, many of these software options allow you to connect with an accountant directly from the platform and save you the headache of doing it all.
According to Intuit, small business owners who use accounting software save as much as 70% of the cost of hiring an accountant for routine tax preparation.
Keeps You Organized Year-Round
Arguably, one of the best things about accounting software is that it keeps your finances organized throughout the year, not just during tax season. When everything is neatly categorized and documented, tax season is less intimidating. You won’t be spending days searching for receipts or wondering where you put that vital invoice.
Organized records, besides making you look suitable for the tax people, are infinitely easier in case you get audited. You can instantly pull up your financial documents and demonstrate precisely how you calculated your taxes, thereby taking a lot of stress off.
Frequently Asked Questions
What are the benefits of using accounting software?
Accounting software streamlines financial tasks, reduces errors, saves time, and improves accuracy in reporting.
Which of the following features are the benefits of using accounting software?
Common benefits include automated data entry, real-time reporting, enhanced security, and easy tax filing.
What is the main purpose of accounting software?
The main purpose is to simplify and automate financial processes, such as bookkeeping, invoicing, and financial reporting.
What are the benefits of using a computerized accounting system?
A computerized system improves efficiency, ensures accuracy, reduces paperwork, and provides faster access to financial data.
Final Thoughts
Accounting software can turn things around in tax preparation, saving you time and reducing stress; it is accurate, with greater availability of tax deductions. Besides this, the software will make tax planning and organization work easier throughout the year and keep you at the top of it all in your finances.
Do you think your taxes could get easier with some accounting software? No matter if you own a small business, are freelancers, or want to make the tax filing process more manageable, this kind of software makes that easier and much more efficient. If you haven’t tried it yet, now might be a good time to make the switch.
Have you used any accounting software for tax preparation? Let me know in the comments below; I’d love to hear from you!
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