Some business owners have never learned how to file taxes for their company. They may dread the process of getting ready for their accountant and searching for necessary documentation.
But there are ways to make filing taxes easier on you and your accountant, and they typically start with getting organized. Here are steps you can take to help your accountant help you during tax season. (Of course, you'll probably want to review with your accountant for further advice on how to file taxes before taking any of these actions.)
1. Review the company's profit and loss statement.
If your financial records haven't been kept up to date, make sure that all revenue and expense transactions are entered correctly. One way to do this is by balancing these against your bank and credit card statements. Providing your accountant with an accurate profit and loss statement (and balance sheet) can help make their job filing taxes easier and ultimately less time consuming.
2. Have last year's tax return at the ready.
Getting advice on how to file taxes this year may be more relevant to you with access to last year's tax return. With this, your accountant may be able to spot any obvious changes or errors that may be noted by a taxing authority.
Comparing company results this year versus the previous year can also be a valuable financial management tool. This is the best metric to gauge how the company is progressing against its past performance.
3. Decide the tax preparation method you'd like to use.
When deciding on how to file taxes, most companies use cash or accrual for their accounting method. Unless there is product inventory, most small businesses will use a cash basis since they only pay tax on money they have actually received minus what was expensed. The company will need to assemble the annual records that correspond to the method chosen. In some cases, a year-end listing of inventory and its value may be helpful to the accountant.
4. Download the journal from the outside payroll service.
(Or internal accounting system if you use one.) This will report all the W-2s sent to employees for their individual taxes. It will also detail how much payroll tax was paid on their behalf and what was deducted from their paychecks.
5. Report your health insurance details.
A fairly recent requirement when considering how to file taxes is a federal requirement under the Affordable Care Act. If the company has more than 50 employees, it is necessary to provide health insurance for their team.
6. Assemble all 1099s sent to outside resources.
Any non-employee that was paid more than $600 during the year needs to be sent a 1099-MISC form. These expenses should also be recorded on the company's profit and loss statement.
7. Compile sales tax paid.
One of the more complicated parts of learning how to pay taxes is if the company is required to remit retail sales tax to state or local agencies. You can collect the documentation that shows those calculations and subsequent payments, and give it to your accountant.
8. List capital assets bought or sold.
Any piece of equipment (or sometimes intellectual property) that is not able to be expensed in a single year needs to be depreciated on the balance sheet. Your accountant will need the name of the equipment or expense and when it was purchased.
9. Review documentation for travel and entertainment.
Travel and entertainment write-offs can be scrutinized by taxing authorities, so detailed documentation on the exact purpose of the expense and who participated can be beneficial.
10. Identify personal motor vehicle expenses used for business.
This needs to include what the business purpose was, a log of miles traveled and any other operating expenses.
11. Summarize any home office expenses.
If your business doesn't have an outside office, sometimes a percentage of rent, home utilities, repairs, insurance, and/or maintenance can be deducted. You can start by calculating the percent of space the home office occupies times the total cost of maintaining the home last year.
Read more articles on tax preparation.
The information contained in this article is for generalized informational and educational purposes only and is not designed to substitute for, or replace, a professional opinion about any particular business or situation or judgment about the risks or appropriateness of any financial or business strategy or approach for any specific business or situation. THIS ARTICLE IS NOT A SUBSTITUTE FOR PROFESSIONAL ADVICE. The views and opinions expressed in authored articles on OPEN Forum represent the opinion of their author and do not necessarily represent the views, opinions and/or judgments of American Express Company or any of its affiliates, subsidiaries or divisions (including, without limitation, American Express OPEN). American Express makes no representation as to, and is not responsible for, the accuracy, timeliness, completeness or reliability of any opinion, advice or statement made in this article.