Business Tax Preparation
Doing your business tax return? We've got tips for you on which records you should have at your fingertips, including last year's return, payroll reports and depreciation schedules.
Key Takeaways
- You can use your prior-year tax return to verify your federal tax ID number, business code number, incorporation date, and the method you use to track your business finances - cash or accrual.
- If you’re filing a tax return for a newly-incorporated business, your articles of incorporation can provide vital information.
- Your partnership agreement can provide the date the partnership started, list of partners, current ownership percentages, and finances tracking method.
- Your bank statements can help you analyze deposits and expenditures and enable you to categorize income and deductions to prepare your tax return.
Gather necessary information
Preparing your own business tax return, especially for the first time, can be a frustrating experience if you don't have all the necessary information at your fingertips. Gathering certain documents before you begin will help you fend off the frustration. Here's a list of items you may find helpful when preparing your business tax return:
Last year's business tax return
Rather not remind yourself of all the tax you paid last year? Understandable, but you still need to dig out your previous year’s return. It provides valuable information and can serve as a good roadmap for making your way through this year's tax return. For example, if you are preparing your own return for the first time, your prior-year return can verify:
- the method you use to track your business finances (cash versus accrual)
- your federal tax ID number
- the date you incorporated or started your business
- the date you elected to become an S corporation
- your business code number and business activity descriptions
- the method you use to track your inventory (if applicable)
- your beginning balance sheet amounts (these are the same as the prior year's ending balance sheet amounts)
- shareholder or partner information if there are no changes
Your previous year's return also is a great comparison tool once you think you have completed your current-year tax return. It can raise red flags about possible missed deductions, or items that seem unusually large or small in comparison to the prior year.
Articles of incorporation
If you don't have your prior-year tax return, or are filing a tax return for a newly-incorporated business, your articles of incorporation provide certain necessary information:
- list of officers
- list of shareholders and possibly ownership percentages (if an S corporation)
- the state in which you incorporated your business
Partnership agreement
Without a prior-year tax return, your partnership agreement is the best source of:
- date the partnership started
- list of partners
- the amount of money each partner initially put into the partnership, and current ownership percentages
- details about any specific income or expense items that are NOT allocated based on profit, loss or ownership percentages
- the method you use for tracking your business finances (cash or accrual)
Accounting records
Income and expense records are the basis of your tax return. Depending on your level of gross receipts and assets, you may need balance sheet information as well.
If you use accounting software, such as QuickBooks or Quicken, to record your financial information, print out a Profit and Loss Statement and a Balance Sheet for quick reference as you begin your tax return. If not, you may wish to compile this information in an Excel spreadsheet. Regardless of which software you use, organizing your accounting records makes tax preparation much easier.
TurboTax Tip:
Having a credit card for your business, separate from your personal credit card, can help you keep track of day-to-day business expenditures like gas, parking, meals, supplies, equipment and other items you plan to write-off.
Bank statements
Here’s where careful storage of important documents pays off: Your bank statements or checking account records are a window into your income and expense activity for the year, particularly if you don't already have organized accounting records. Make sure you know where these statements and records are so they’re right at your fingertips at tax time.
Analyzing deposits and expenditures will enable you to categorize income and deductions to prepare your tax return. It's a good idea to reconcile your ending cash balance to the checking account balance on your last bank statement of the year to ensure you've captured all cash transactions in your accounting records.
Credit card statements
Small business owners often don't have time to keep track of day-to-day expenditures such as gas, parking, meals, supplies, equipment and other items. But knowing how much you've spent on them can be important at tax time when you're ready to calculate your write-offs.
Your credit card statements can be a big help in sorting out these expenses, so keep those statements handy. Particularly valuable will be a year-end summary statement that breaks down expenditures by category, which many card issues provide nowadays.
Payroll reports
Your payroll tax filings, both federal and state, will help ensure that you have the correct payroll and payroll tax expenses in your accounting records.
Detail of asset purchases
Major assets you buy for the business typically need to be depreciated over a number of years rather than expensed during the current year. Have the following information available for these assets:
- cost of the asset, including any sales tax paid
- description of the asset
- date put into service
- amount of time the asset is used for the business (versus for personal use), stated as a percentage of total use
Depreciation schedules
If you're preparing your own tax return for the first time, you'll need to enter into your tax return the details of the assets the business has that it is depreciating as of the beginning of this tax year. The tax software will calculate the depreciation on these assets going forward. You'll need the following:
- description of the asset
- date put into service
- original cost of the asset
- accumulated depreciation up to this tax year
- business use percentage (if applicable)
- recovery period of the asset (3 years, 5 years, 7 years, etc.)
- any Section 179 expense or bonus depreciation taken in the first year of service
Detail of asset dispositions
If your business sold any depreciable assets during the year, you'll need the following information to calculate any gain or loss on the sales for tax reporting purposes:
- description of the asset
- date of sale
- sales price of the asset
- any expenses of the sale
- prior depreciation (if not calculated by the software)
Vehicle information
If the business owns any vehicles that are used by employees or shareholders/partners for personal and business use, you'll need the following mileage data:
- miles driven for business
- personal miles
- commuting miles
Taking a little time to gather your tax-related documents will pay off, in time saved and frustration eliminated.
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