Preparing for Business Taxes? Things You’ll Need to Give Your Accountant

As the famous saying goes, “April showers bring May flowers… and tax season.” 

Each year millions of American citizens and businesses file their taxes, and nearly just as many find filing to be tedious and even daunting. That is why so many filers seek out assistance from those who are trained in the high art of filing taxes, (also known as accountants). 

While your accountant will do most of the heavy lifting, it’s important to provide them with the appropriate materials in order to save both time and money. In this article, we’ll go over what you’ll need to give your accountant this tax season so that you can spend less time sifting through paperwork and more time enjoying those April showers. 

Where To Begin

No matter what sort of business you are filing for, there’s some basic information that everyone is required to provide. This includes your:

  • Legal Name
  • Social Security Number (It helps to bring your social security card)
  • Current address 
  • Employee Identification Number (Also known as an EIN) 

It is also helpful to give your accountant last year’s tax return. This way, they can familiarize themselves with your business and use it as a reference while completing this year’s forms. 

Accountants are paid by the hour, so the more information you have ready for them, the happier your wallet will be.

Filing For Your Employees

In addition to providing your own personal information, you will also have to submit 1099 forms or W-2 forms for each of your employees. W-2’s include information regarding how much you paid each employee, including hourly wages, tips, and any other form of compensation. 

1099-forms are for any contracted workers. Contracted workers are individuals who’ve been paid more than 600$ for their services but aren’t employees. 

What Are Write-offs and Deductions?

A tax write-off and a tax deduction are two terms for the same thing. A deduction, or write-off, lowers the amount of annual income you are taxed for. So, for instance, if you make $100,000 but have 30,000 dollars worth of write-offs, you will only be taxed for a percentage of 70,000 rather than the full 100,000. 

In order to maximize your write-offs, you will also need to submit all financial records that may affect the deduction you can claim on your tax return. 

It is extremely helpful to keep your records organized throughout the year through an online database like Quickbooks or a particularly neat filing cabinet so that everything is easily accessible when tax season calls. 

Some of the information your accountant may ask for includes:

  • A profits and loss report which documents (you guessed it) the profits and losses of your company throughout the year
  • A balance sheet that lists all of the company’s assets and liabilities, and 
  • A cash flow statement for all transactions affecting the company’s cash flow. 

Perhaps you are a startup business and received a business loan to get your company off the ground. If this is the case, be sure to bring any and all documentation of each loan you received throughout the year. 

As we all know, 2020 looked a bit different from most years. If your company received a PPP (Paycheck Protection Program) loan, all qualifying purchases paid with PPP Loan money can be written off. Be sure to provide documentation of all of these purchases in order to lower your tax liability. 

What Can I Write Off?

When filing for your business, there are many things you can list as deductible on your return. 

Let’s go over some of the most common ones so that you don’t end up overpaying on taxes: 

Startup Fees

If you are a startup, you are also eligible for a $5,000 start-up deduction as long as your total startup costs are $50,000 or less. If your start-up costs are greater than $50,000, you still may be eligible for a smaller deduction. 

Legal Fees

Legal fees that are directly related to running your business, including attorney, lawyer, and tax preparer fees, can typically be written off. However, personal legal fees are non-deductible. 

Travel Expenses

While things such as business-related plane tickets and meals can be written off, be sure not to take advantage of this rule, as the IRS can flag transactions that appear to be too lavish. 

Charity Donations

Businesses are able to donate up to 60% of their gross income to tax-exempt organizations. 

However, certain organizations such as private foundations and fraternal societies have different limits on how much can be annually donated. The full breakdown can be referenced on the IRS’s website. 

Investments

Bring all records of any stocks or bonds that were bought or sold by your company. You’ll also want to include records of any investments or withdrawals that you have made personally. 

Bank & Credit Card Fees

As a small business owner, your credit card can be your best friend. Luckily, you can write off fees associated with your bank or credit card institutions. These fees could include credit card processing fees, monthly or annual service fees, transfer fees, and even overdraft fees. 

While your accountant may not require all of the above, it is always better to be over-prepared than scrambling at the last minute to hunt down your financial records. 

In case you miss one of the available business deductions, some deductions can be made retroactively. This means that your accountant can reevaluate your filings to include any applicable deductions 

Forms specific to your business

Once you’ve collected all of the records listed above, you and your accountant will be in pretty good shape. But keep in mind there are specific forms required, depending on the type of business you are filing for.

  • Partnerships: 1065, 940, 941, 943
  • Freelancers & Sole Proprietors: 1040, Schedule C, Schedule C-EZ, 1040-SE
  • S Corporations: 1120-S, Schedule K-1, 940, 941, 943
  • Single Member Limited Liability Corporations (LLCs): 1040, Schedule C, Schedule E, Schedule F
  • Limited Liability Corporations (LLCs): 1065, 1120-S, Schedule K

All of these forms and more information specifying what is required for different types of companies are available directly on the IRS’s website. 

Tips For Keeping Tax Season As Painless as Possible

Be Prepared

Let’s face it; no one is jumping out of their seat at the chance to work on their taxes. However, there are several steps you can take to make filing as seamless as possible, and in turn, maximize your write-offs. 

Get a Head Start

It’s much harder for your accountant to get everything in order within a month than it is if you are communicating throughout the year. That’s why, although it may be tempting, waiting until April to begin your filing could end up costing you. Most accountants agree that it is ideal to begin filing as early as February. Of course, the earlier you start, the less chance there is of having to file for an extension. 

It is also helpful to communicate with your Accountant throughout the year. By checking in before major acquisitions or adjustments to your business, they can help you make smart choices and avoid things that limit or reduce deductions. 

Stay Organized

While accountants are professionals, at the end of the day, they are only human. Think twice before handing your accountant a cardboard box filled with jumbled receipts and invoices. 

Instead, accountants suggest creating a folder at the beginning of each year and filling it with tax return-related documents as the year progresses. It’s helpful to group similar documents together and even calculate the totals of receipts. Unfortunately, accountants cannot read minds, so the more accessible your documents are, the better. 

Accounting software

Having everything easily accessible in one place will save you lots of time while preparing your tax documents for your accountant. Online accounting services are a great way to keep things organized.

 Additionally, most accounting software is capable of generating income statements, cash flow statements, and balance sheets. When using an online service, you can share access directly to your accountant so that when tax season comes around, they will have all of your information ready at their fingertips. 

Final Thoughts on Preparing Your Taxes

Let’s face it, filing taxes for your business can feel like a chore. However, the more prepared you are, the more money you will save for your business. Hiring a tax professional may seem expensive, but with their guidance, you can end up saving thousands of dollars in deductions. 

A happy accountant is a helpful accountant, so having all of your financial documents ready to go and your receipts organized will make their life, and yours, a lot less stressful come tax season. The more that your accountant understands your financials, the better they will be able to determine which deductions are applicable to your business. 

Don’t be afraid to reach out to your accountant and ask what you can do to be better prepared at the end of the day. It is their job to help, and they will appreciate you asking for advice a lot more than you frantically dumping a shoebox of receipts on their desk on April 1st. There’s no need for tax season to be overwhelming. With just a little preparation, filing taxes for your business can be a spring breeze. 

 

Sources:

All Things Accounting All In One Place | Quickbooks 

Small Business Forms and Publications | IRS

Deducting Business Expenses | IRS

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