Whether you’re a seasoned pro, or it’s your first-time filing taxes for a business, there are commonalities in what your tax preparer will need to ensure your returns are complete and accurate. Using a checklist will not only save time, but will help your tax professional find all the deductions and credits to which you’re entitled, giving you the lowest possible tax bill. Who doesn’t want to simplify their business taxes and pay less?
First and foremost, you should already have some form of business accounting system in place, capable of tracking your transactions, and generating reports. If you’re just starting out and have a minimum number of transactions, you might be able to keep it simple, using a spreadsheet, or Quicken.
However, you’ll pay for the simplicity by having to migrate to something more robust as your business grows. Options for sole proprietors, freelancers, and very small businesses include Fresh Books, and Wave, both of which are recommended by Investopedia, Nerd Wallet, and PC Magazine.
If you’re growing, and have, or intend to have payroll, you might prefer something that will grow with you. Top picks include Xero, Quickbooks Online, and Zoho. Prices, functionality, integration and available modules vary from one system to another. For best results, and to avoid the perils of migration sooner than necessary, let HKMP help you determine which system will suit your needs and your growth, and provide the best overall value.
Once you’ve entered all transactions for the year into your chosen accounting system, you can prepare the following reports:
- Income and Expense (aka P & L)
- Balance Sheet
- Statement of Cash Flows
- Previous Year’s Tax Return
This will help your tax preparer determine where additional detail is needed. You can start by providing detail for the following areas:
- Assets purchased, depreciated, or disposed of
- Opening and closing inventory, if applicable
- Stocks or bonds purchased or sold
- Payroll reports
Much of this information will also be useful when tax planning during Q4 of 2022.
Information about your loans may be a little trickier this year if you took advantage of the Paycheck Protection Program (PPP), or Economic Injury Disaster Loan Program (EIDL). Though they may be excluded from income, it’s important to report them accurately so you won’t pay unnecessary taxes on funds which helped keep your business afloat amidst the challenges imposed by COVID regulations.
Detail Made Easy
Other areas for which you might be asked to provide detail are:
- Officers’ salaries (corporations)
- Guaranteed payments to partners (partnerships)
- Dividends received broken down by payer
- Taxes and licenses
- Professional fees
- Charitable contributions
Most of the accounting programs mentioned can create schedules by payee which will satisfy your accountant’s needs. Make sure your detail includes the tax year for which your tax payments were made so any pre-payments are applied correctly.
Staying Tax Prep Ready
Tax preparation shouldn’t be something you ignore until it’s time to give your records to your tax accountant. There are a number of ways to stay ahead of the curve so your accountant can not only prepare your tax returns, but help you with tax planning before the year is over. Above all, they’ll help simplify your business tax information gathering process and the transmitting of required filings at tax time.
- Adequate accounts for collection of costs and income (e.g. Officers’ Salaries and bonuses separate from Employees)
- Maintain up-to-date schedules for:
- Taxes and licenses
- Stocks and bonds
- Reconcile accounts at least quarterly, if not monthly
Keeping your books and records up to date will enable you to schedule a tax planning appointment during the fourth quarter. There are many opportunities to improve your tax position in both the current, and subsequent year. Don’t lose out on many tax saving strategies by failing to act before the end of the year.
Make HKMP your one-stop-shop for accounting, tax planning, and tax preparation.