Tax season is frustrating and stressful for one and all, but as a small business owner, it is also a great time to review your business and personal finances. Follow our tax preparation checklist to make sure you’re organized and well-prepared this tax season as a small business owner.
- Hire a Tax Preparer or CPA. Tax laws change frequently, so it’s best to hire a Tax Preparer or CPA who can apply current tax laws to your business. It will also help you take advantage of allowable tax deductions and reduce your tax bills.
- Gather Your Records. Kick off your tax preparation by putting together your records and generating your year-end balance sheet, income statements, and payroll filings. Many of the line items in your tax return are based on this income statement.
- Collect and Review Your Statements. Ensure that your income statement expenses are correct, and look out for deductible expenses that may not be properly coded in your accounting transactions. Make the necessary alterations and generate an updated income statement to provide to your Tax Preparer/CPA.
- Track Your Yearly Mileage. If you use a personal vehicle for business purposes, the miles you drive for work can be deducted from your taxes. Mileage tracking apps help you figure out exactly how many miles you drive for business purposes. This is ideal because the IRS requires you to have a log rather than rely on an estimation (Miles logged to and from your office generally are not deductible as a business expense.)
- Calculate Your Out-of-Pocket Expenses. If you’re using your personal funds for business expenses, those expenses are justifiable tax deductions. For e.g. using your personal Amazon account to purchase items for your business. Make sure to capture these expenses and write yourself a reimbursement check from your business account before the end of the tax year.
- Collect Any 1099s You Receive. If your small business is service-based, you will receive 1099s from your clients, and a form 1099-K from your merchant processor. The 1099 and 1099-K help the IRS ensure that taxpayers are reporting all their income.
- Issue 1099s Appropriately. It is mandatory to issue 1099s to any non-corporate service provider who you pay more than $600 to in one year with the exception of attorneys, who must always be issued a 1099.
- Gather Your Receipts. Assets** (computers, machinery, furniture, etc.) that your business acquired in 2018 may be deductible expenses from your taxes, so make sure to pass those receipts on to your tax preparer. Just keep in mind that you must deduct the depreciated price, not the purchase price. **Assets can be defined differently, but typically they cost more than $500 and will be in use for more than one year.
- Itemize Meal Expenses. As long as you are present as the business owner and the meals aren’t considered extravagant, you can deduct 50% of the cost of meals you buy for clients, and 100% of the meals you buy for yourself or for your employees while traveling.
- Review Your Loan Balances. Remember to review your loan statements at the end of the year with your bookkeeper, and confirm that the balances on your balance sheet match the balances on your loan statement(s).