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Preparing for Tax Season, What Small Businesses Need To Know

Small business owners have a lot of tax responsibilities, and when added to the regular business responsibilities, there’s a lot to keep track of. A checklist can help gather more accurate information for your tax preparer to file your return.

1. Meet with your bookkeeper.

Whether you outsource your bookkeeping or keep it in-house, your bookkeeper is a valuable resource when it comes to small business tax preparation. Ensure all your accounts are fully reconciled and all financial reports are current and correct.

2. Update your mileage log.

If you use your personal vehicle for business, deducting the standard mileage rate on your tax return is usually more beneficial than deducting your actual vehicle expenses for the year.

3. Gather your financial records.

Here’s a list of some of the most common documents that small business owners will need before meeting with the their tax preparer :

  • Income statement

  • Balance sheet

  • Bank and credit card statements

  • Payroll documents

  • Last year’s business tax return

  • Partnership agreements

  • Accounting documents

  • Asset purchase details

  • Depreciation schedules

Ideally, you should be using business accounting software to generate most of these financial records.

4. Capture all expenses you have paid for out of pocket.

Do you purchase things for your business using your personal Amazon account? Have you ever used your family PayPal account to subscribe for a business service? As much as possible, you should always separate personal from business finances, but even if you do use a personal account for business expenses, those expenses are legitimate tax deductions.

5. Record all personal expenses paid for from your business accounts.

Just as you may purchase things for your business using your personal accounts, you might occasionally grab your business credit card instead of your personal credit card when you are in a rush at the grocery store checkout line. These personal expenses need to be recorded properly in your bookkeeping system, so they are not improperly deducted as business expenses

6. Make sure you have all of the information needed to issue 1099's.

The IRS requires you to issue Form 1099 to any non-corporate service provider to whom you pay more than $600 in a given year (the corporation rule does not apply to attorneys, who must be issued a 1099 regardless of corporate status).

7. Pull receipts for asset purchases.

Assets include furniture, computers, vehicles, and other large purchases. Your tax preparer will need to know when the asset was purchased and what was included in the purchase price—so pulling these receipts is necessary.

8. Ensure your loan balances match your balance sheet.

Review your loan statements at the end of the year with your bookkeeper, and make sure the loan balances on the balance sheet match the balances on these statements.

9. Make sure your meal expenses are properly categorized.

If you classify all meals as “Meals and Entertainment” expenses, your tax preparer will only deduct 50% of the expenses as a business expense. Take a little extra time to sub-categorize these expenses as Travel or Employee meal expenses to maximize your tax deduction.

10. Note any changes in business ownership.

If a partner leaves the business, or if you offer a stock option to your employees, your tax preparer needs to know about it. Changes in ownership affect the equity in your business.

11. Schedule a pre-appointment call with your tax preparer.

Few things are worse than showing up for your tax appointment unprepared. Not only does this mean you have to make multiple trips to your preparer’s office, but it also delays the preparation of your return.

If you require any information or tax preparation services for your small business please contact me using the contact page.

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