What do I need to prepare for taxes?

When it comes to business tax returns, your accountant will request specific information and documentation from you. Of course, it is always best to consult your professional based on your specific business and operations. However, to get you started, we have prepared a small business tax checklist for you.

Small Tax Business Preparation Checklist

For your business return, you will need to provide information and documentation in regard to your income, expenses, cost of goods sold, employee payroll, and contractors.

Income

You will need to calculate and document your income based on:

  • Gross receipts from sales/services

  • Accounts receivable

  • Returns and allowances

  • Accrued interest

  • Investments or rental income

  • Any other applicable income sources.

Cost of Goods Sold

If you manufacture, purchase, or sell products in your business, you need to take inventory at the beginning and end of the year. You will need the following information:

  • Beginning value of inventory

  • Inventory purchases

  • Ending value of inventory

  • Items removed from inventory

  • Materials & supplies

Expenses

You will need to calculate and document business expenses. Make sure to record each and every deduction. To get you started, here’s a list of types of business expenses:

  • Advertising

  • Business Insurance

  • Commission and Fees

  • Contract labor

  • Interest Expense

  • Phone, computer, & internet expenses

  • Professional & Legal fees

  • Transportation & Travel

  • Rent expense and/or in-home office deductions.

  • Employee wages

Tax Forms

Depending on your operations, you may also need to gather the following:

  • Identify your type of business and applicable federal income tax form

  • If you pay contractors, file Form 1099-NEC and Form 1096

  • If you have employers, you will need tax forms such as W-4, W-2 or W-3, etc.

  • You will also want to include state and local tax forms including sales tax.

 Financial Records

You will also want to make sure you have your financial records together before filing:

  • Income statement

  • Balance sheet

  • Payroll documentation

  • Last year’s business tax return

  • Partnership agreements

  • Asset purchase details

  • Depreciation schedule

  • Bank and credit card statements

 Additional Items to Consider

  • If you operate your business out of your home, you will need the square footage of the office space, total square footage of your home, hours of use, mortgage or interest paid, homeowners/renters’ insurance, and utilities.

  • If you use your personal vehicle for business, update your mileage log.  

Tax Preparation Process

When it comes to taxing, you want to make the most of your time as a business owner and to efficiently work with your bookkeeper and/or tax preparer.

For a smooth process, consider the following order of operations:

  1. Prepare your tax calculations and documentation.

  2. Meet with your bookkeeper to discuss questions, ensure all accounts have been reconciled, and generate applicable reports.

  3. Schedule an appointment with your tax preparer and complete their tax preparer.

  4. Bring your completed tax preparer and supporting documentation to your tax appointment.

  5. Work with your tax preparer to provide any additional information and to ultimately file your taxes.

Helpful Tax Tips

There is a lot that goes into taxes. Small business owners have a lot of tax responsibilities in addition to their regular business responsibilities. You want to make sure you file an accurate return to avoid paying penalties. Here are 5 tips to help make your life easier as a business owner.

#1 Build Your Support Team

Hire a bookkeeper to keep your revenue and expenses up to date, track your receipts, run your accounting software, reconcile chart of accounts, generate reports, etc. Hire an accountant and/or tax preparer to help you file your payroll and income taxes.

#2 Adopt Accounting Software

Accounting software will help keep track of your transactions, enable you to run payroll, generate reports, etc. Accounting software is a great way to reduce data entry, balance accounts, and save time as well as effort.  

#3 Stay on Top of It

Make sure your bookkeeper stays on top of categorizing transactions, matching up receipts, and reconciling accounts. If you make it a monthly task and continue to keep things up to date, it will be far less time consuming and overwhelming at the end of the year. Instead of scrambling to get everything organized and calculated at the end of the year, you can simply focus on verifying and gathering the remaining details.

#4 Ask Questions

A tax professional can be invaluable when questions arise, so don’t be afraid to ask! For example, if you contract services, you should ask, “What do I need to be aware of when hiring an independent contractor as opposed to an employee?”

#5 Stay Informed

Tax forms and regulations can change over time, so make sure you stay informed. Many accountants send out newsletters or special announcements to notify you of changes that may be applicable to your business. Identify a few good sources to follow (i.e. your accountant, the SBA, IRS, etc.) and stay informed.

Summary

To prepare for tax season as a business owner, start early and stay on top of it! Do not wait until the last minute. The checklist above, suggested process, and tips should help make your life easier. If you’d more information on small business tax returns, visit the SBA and/or IRS.