The new year is finally here! January is a great time to focus on your personal goals for the upcoming year. You may be setting new year’s resolutions to stay healthy or save money. What about your business?
As a small business owner, the new year is also a great time to set a few resolutions for your business. With tax season looming ahead, you may want to focus on getting organized and making the most out of your taxes. Here are a few tips from The Harding Group that will help your small business to prepare for tax season.
Prepare Paperwork for Your Accountant
January is a great time to provide your accountant with all the paperwork they need to do your small business’s taxes. Here’s a list of the paperwork you should provide your accountant:
- Financial Statements: You should include a balance sheet and income statement. Make sure to print them both on the correct basis: either cash or accrual depending on the tax basis you have selected. All bank accounts should be reconciled and any outstanding checks or deposits in transit that are old and won’t clear should be removed. Also, make sure you have reviewed your accounts payable and receivable, and updated your ending inventory. Your accountant will also need to see your company’s assets and liabilities.
- List of Capital Asset Activity: If you bought, sold, or disposed of any capital assets during the past tax year, then it will need to be reported on. It’s important to capture new assets so they can be depreciated properly. And it’s important to remove old assets so you don’t have to pay personal property tax on things you don’t have any more. Your accounting software should allow you to print a list of all your capital-asset activity from the previous year, which will help your accountant to classify any changes.
- Vehicle Log: If you drove a car for business purposes, you need to provide the total mileage you drove in year with a breakout of the business miles, commuting miles, and personal miles. Do you sometimes use your personal car for business purposes? If so, you may be able to claim some of your car’s operating expenses as a tax deduction against your small business income. There are two ways to calculate this expense. Vehicle expense can be claimed using the standard mileage rate or the actual expense method. As the name implies, the actual expense method includes your actual expense on things like gas, repairs, interest on the loan, and depreciation. You have to continue with whichever method is chosen the first year the car is put in service. The standard mileage rate is easy, but the actual expense method can generate a nice write-off the year you buy the vehicle. We calculate it both ways to determine which is best.
- Summary of Home Office Expenses: If you have a space at home that you use regularly and exclusively for business purposes, you may qualify for the home office deduction. These expenses can include a percentage of your utilities, repairs, maintenance, home insurance, and mortgage interest or rent. You will need to provide all of that information as well as the total finished square footage of your home and the square footage of your office space. If it’s the first year that you claim the expense, then you will also need to provide the closing statement from when you purchased the home and the dates and costs of any improvements you have made so that depreciation can be calculated. Be sure to ask your accountant if they need all your receipts or just the summary.
- Form 1098 for Mortgage Interest and Property Taxes: Your IRS Form 1098 summarizes your mortgage interest and property tax payments for the past year. Your accountant can use this form to claim the mortgage interest deduction that you are entitled to as a homeowner as well as use them for your home office deduction.
Prepare Employee Forms
There are new deadlines for filing W2 forms and 1099 forms. You have until January 31st to supply your employees with their W2 forms. For the subcontractor 1099 forms, if you fill out Box 7: Nonemployee Compensation, then you must meet the new filing deadline of January 31st. (If you do not fill out any information in Box 7, then you may file by the original deadline of February 28 for paper filings or March 31 for electronic filings.) You only have to supply subcontractors with their 1099 forms if they were paid over $600 in the past year. Make sure that you have classified your employees correctly as either employees or independent contractors. Next, make sure that you have all the information needed for both of these forms. For the W2 form, you will need:
- The name, address, and zip code of your business.
- The state tax identification number for your company.
- The amount paid to each employee, including total wages, tips, and other compensation.
- The amount of federal income tax withheld for each employee.
- Social security wages, up to the Social Security maximum amount for the year.
- Medicare wages and tips and Medicare tax withheld.
- Any allocated tips paid.
- Any dependent care benefits paid, as well as any other benefits taxable to the employee.
- For each state where the employee worked, you must include the state wages and tips paid as well as the state income tax withheld.
- Local wages and tips paid as well as local income tax withheld.
For the 1099 forms you will need:
- Your Federal Tax ID number.
- The contractor’s Social Security Number or Employee Identification Number.
- The contractor’s address
- The total amount of money paid to the contractor in the tax year.
- Federal or state income tax withheld.
- Contact information for the contractor.
The best way to get this information is to have the contractor fill out a W-4 form for you before you pay them!
Review Your Year-End Finances
This is a great way to get organized and ready for tax season! As you prepare for tax season, make sure that you keep track of all your receipts of business-related expenses throughout the year. After you have cataloged all of your business-related receipts, it will be much easier for your accountant to review your year-end finances, including profit and loss statements, employee records (if applicable), and the balance on any business loans. Looking at this information can help your accountant to identify any trends, such as miscellaneous expenses that you can eliminate. When organizing your receipts, pay extra care to keep your business and personal receipts separate.
Look for Deductions
There are many different deductions that small business owners can take advantage of while they prepare for tax season. These deductions can make a big difference in your taxes, so it’s good to be aware of them! Here are a few deductions that business owners should prepare for in January:
- Travel expenses: Be sure to keep track of receipts for any business-related travel in the past year.
- Business supplies: Any supplies you’ve purchased for your business can be claimed as a deduction.
- Advertising and promotional expenses: Did you pay for advertising? You can claim that as a deduction.
- Taking classes for your career: If you took college level classes or completed a certification course to improve your business skills, you can claim the classes as a deduction.
- Charitable donations: If your business made any charitable donations during the past year, you can claim it as a tax deduction.
- Retirement fund: If you contributed to your retirement fund or matched an employee contribution to their 401k, you can count it as a deduction.
- Tax preparation expenses: That’s right, the amount you pay The Harding Group to prepare your taxes can be claimed as a deduction!
Be sure to talk to your accountant about any other deductions your business may be eligible for!
Schedule an Appointment with Your Accountant
What else can you do in January to prepare for tax season? Schedule an appointment with your accountant! Taking the time to sit down with your accountant can ensure that you are keeping on top of all of your paperwork and understand any steps you need to take to be prepared for filing your small business’s taxes.
It’s especially important to sit down with your accountant if you are a first-time small business owner. Tax code is constantly changing and very difficult to understand, so it’s important that you convene with a professional accountant who knows the tax code intimately. Your accountant can guide you through the process of cataloging your receipts, filing forms, and preparing your taxes so that you don’t end up with any frustrating and costly mistakes. Your accountant also makes sure that you are aware of any deadlines ahead of time, including payroll, sales, and income tax deadlines.
Prepare for Next Year
Now that you’ve done everything you can to prepare for tax season, it’s time to prepare for next year’s tax season! Take the time now to establish a good system for organizing receipts and other records. You’ll thank yourself next year when filing your taxes is a breeze!
Prepare for Tax Season with The Harding Group
The Harding Group provides financial and tax support to small, local businesses. We can help you with accounting, bookkeeping, taxes, and payroll support. As a local business ourselves, we take the time to get to know about your business, your issues, and your goals. Our hardworking staff is available to talk to clients about their needs at any time. And unlike most accounting firms, we won’t charge you when you email or call with questions. That’s what makes The Harding Group an asset to our community; we want to work with you and we work hard to cultivate and maintain positive relationships with all of our clients!
Do you need financial or tax advice? Give us a call at 410-573-9991 or shoot us an email at firstname.lastname@example.org. And be sure to like and follow us on Facebook, Twitter, and LinkedIn for more updates and advice!