Whether you do your own taxes or take them to a tax preparer, this year vow to be more prepared. A little work throughout the year makes it easier.
I used to work in a small CPA office, and I remember many occasions where I was handed a box full of receipts and check stubs and bank statements. It’s great detective work, and just some basic bookkeeping to put together all those deposits and checks and prepare financial statements from them, but it takes time, and time costs money – yours!
I am an Accountant with over 20 years experience, and I’ve worked with many different types of businesses. So here’s some things you can do all year to keep organized.
Tips on Small Business Taxes
Keep Track of your Sales
Keep all your deposit slips and the backup for them. This includes your sales invoices, the customer’s check stub, etc. Keep them in a file folder or box, labeled for the appropriate year. And no, this is not what you hand to your tax preparer. This is just for documentation. You need to document all your sales. If you don’t use accounting software, start a cash receipts journal. See below.
Keep all Business Receipts
Keep all receipts for anything purchased for your business. Keep them in a folder labeled for the appropriate year. This is for documentation. If your small business taxes are ever audited you need to provide proof for all your deductions. So keep those receipts! And, no, a credit card statement is not enough. You need an actual receipt of purchase that shows the items/services purchased. If you don’t use accounting software, start a cash disbursements journal. See below.
Did you purchase any assets?
Assets need to be added to your Balance Sheet, and will be depreciated (which is an expense for your business -yeah!) so you need to keep the receipts and make sure you let your CPA know what you purchased during the year.
Did you sell any assets?
Any assets sold will need to be taken off the Balance Sheet on your small business tax return, and off your depreciation schedule. Your tax preparer will calculate a gain or loss on the sale, so keep documentation for the sale, and let them know what was sold during the year.
Did you pay any non-incorporated vendors or freelancers or attorneys or subcontractors more than $600 during the year?
Keep track of your vendors and how much you pay them. Current law requires you to send a Form 1099 (like a W-2 but for non-employees) to anyone you paid more than $600 during the year. However, currently you can exclude any corporations, except attorneys (they get one anyway).
Did you give out any Donations this year?
The proper tax term is Charitable Contributions, and only money paid to a “qualified organization” is recognized and deductible on your small business tax return per the IRS. Contact the IRS Website for more info if you’re not sure about the organization you helped out. Also, gifts over $250 should be recognized with a letter from the organization, so make sure you have one as documentation for your gift.
Do you have employees?
If you have employees, make sure you keep records of all amounts paid to your employees, including wages and any fringe benefits. If you have a service doing payroll for you, you still need to keep records. Also keep record of the small business payroll taxes you’ve paid each quarter.
Did you deposit any personal funds into the business, or take any business funds out for personal use?
If you did, keep track of these funds. Depending on your business structure, these need to be recorded as equity transactions or shareholder loans or dividends.
If you’re an S-Corp, do you pay yourself a wage?
If not, you should. The IRS targets S-Corp owners to look for this. You need to pay yourself a ‘reasonable’ wage.
Do you have a manual accounting system?
Maybe your business is small, or you’re just starting out. Or you don’t have the time to deal with accounting software. You can make your small business taxes process easier by using a Cash Disbursements Journal and a Cash Receipts Journal.
These are great tools to keep track of all your sales and expenses month by month. If you use these tools, all you have to do is add up the totals for each month and give these to your tax preparer instead of that box of stuff.
If you’re not sure how to get started, I have an ebook and an ecourse on this topic. It will walk you thru the process of setting up your own system to track your receipts and disbursements. For info on the ebook or ecourse, click here.
So, to make this tax season easier, keep documentation for sales, expenses, assets purchased/disposed of, and owner transactions. Also, if you’re not using accounting software, start using cash journals to track your sales and expenses. At year end, you’ll be glad you did.