Small Business Income Tax Preparation

Although we meet with small businesses at tax time to handle their income tax preparation, we see this as the end result of tracking information and performing certain tasks correctly throughout the year.

The problem is, many business owners wait until the 11th hour to file their taxes. Instead of having their paperwork and records ready to go, they have to start from scratch, go back 12 months, and cobble together the information required by the government. It’s a mad scramble at the last minute.

Income Tax Preparation

Here is a list of general categories of information your small business will need to provide at tax time. Keep in mind that there could also be more specific sub-categories to consider depending on the type of business you have. This information should be tracked and organized throughout the year.

Income. You’ll need sales or service receipts, sales records, account interest, and records from other sources of income.
Expenses. There are a wide range of business expenses, such as advertising, phones, computers and internet connectivity, employee wages, transportation and travel, depreciation, insurance, supplies, rent, and more. The IRS won’t be happy if the only proof you have of your expenses is credit card statements, so save your receipts and note the purpose of each purchase.
Sales tax. This should be submitted monthly or quarterly depending on volume.
Payroll tax. Penalties are very high for paying the incorrect amount.
Cost of goods sold (if you sell physical products). You’ll need inventory data, such as beginning and ending dollar amounts, as well as costs for materials and supplies.

As you might expect, bad things can happen when you wait until tax time to dig up a year’s worth of information. You could end up underpaying or overpaying your taxes. If you file an incorrect return, you’ll have to devote more money and resources to file an amended return to get it right.

Our Approach to Preparing for Business Income Tax Preparation

That may sound redundant, but this is exactly what small businesses should be doing to reduce stress and the risk of errors at tax time. Prepare all year for income tax preparation.

Track the information mentioned earlier using QuickBooks to save time and improve accuracy. Perform a bank reconciliation every month. Meet with your accountant at least on a quarterly basis to make sure payroll, sales tax, and financial records are being properly handled.

Separate personal expenses from business expenses by using separate credit cards and bank accounts. Make sure you understand which expenses are deductible. Not only could you miss out on certain tax benefits, but you could also waste your time tracking expenses that aren’t deductible.

If Your Small Business Isn’t Prepared for Tax Preparation, All Is Not Lost

If you’re tracking the right information and maintaining accurate records, you’re in good shape. If you wait until the last minute to pull everything together, we can file for an extension to buy you some time. As QuickBooks Pro Advisors, we can review your bookkeeping or handle it for you. We can help you organize your records, make sure sales tax is up to date and payroll is being managed correctly, and put systems in place for tracking the appropriate information. We’ll also meet with you throughout the year to help you stay on track.

Need help making sure your small business is prepared for tax preparation? Contact us to schedule a consultation.