Small Business Owner’s Checklist for This Year’s Tax Season

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Up to 70% of small businesses outsource their tax preparation as well as other accounting functions.

Preparing tax forms and tax returns are as confusing as they are time-consuming. Most small businesses would rather rely on an expert to do things correctly rather than waste their own resources to do it incorrectly. Considering what can happen if small business taxes aren’t accurate, it makes sense to have a tax preparer.

But even when you have help, you still need to get organized to file your tax return on time and with accurate information.

With tax season upon us, the sooner you get started, the easier the process will be for you and your tax preparer. March 15, 2019 is the deadline for S corporations and partnerships to file, followed by a deadline of April 15, 2019 for all small businesses.

Use our handy checklist below to make sure you’re ready to file before these dates.

  • Schedule a Meeting With Your Bookkeeper – Schedule a meeting with your in-house bookkeeper or outside accountant to review your accounting records and confirm items have been correctly entered. Scheduling a meeting early will allow you and your accountant to review and resolve potential discrepancies. Bookkeepers typically don’t handle tax preparation themselves, but they have lots of important information you will need to complete your financial records, which you will give to your tax preparer. Your tax preparer will analyze your financials (i.e. Profit & Loss Statement, Balance Sheet, and General Ledger) to prepare your tax return.
  • Figure Out Your Yearly Mileage – Many small businesses rely on work vehicles. Even if you don’t, the miles you drive for work can still be deducted from your taxes. Mileage tracking apps make it easier than ever to figure out exactly how many miles you drive for business purposes. This is ideal because the IRS requires you to have a log rather than rely on an estimation. But, remember that miles logged to and from your office generally are not deductible as a business expense.
  • Collect Your Bank Statements for All Bank Accounts – Tax preparers need to verify that all expenses and revenue have been recognized in your accounting records. To do that, they will reconcile your bank statements and the total income deposited must match the revenue you report on your tax return. Gather bank statements up as soon as possible so you have plenty of time to get any missing documentation from your bank. You may also consider getting images of your canceled checks and large deposits, especially deposits that may not be income (i.e. loans).
  • Add Up Out-of-Pocket Business Expenses – If you’re like most small business owners, you end up using your personal funds for business expenses. Those business purchases can be deducted from your taxes, but if these purchases were not entered in the business’ bookkeeping, they could easily be overlooked. Review your personal bank account and credit card statements from the last year to identify any deductible business expenses. If there is any doubt about what qualifies, consult your tax preparer.
  • Save All 1099s You Receive – Any small business that is service-based should receive 1099 forms from their clients. Starting in 2011, the law now requires merchant processors (like PayPal, Stripe, or merchant credit card processors) to issue a form 1099-K. Your tax preparer may not technically need these documents, but they are still helpful for confirming your actual business income.
  • Issue Your 1099s Appropriately – You are required to issue 1099s to any non-corporate service provider who you pay more than $600 to in one year. The only exception is attorneys who must always be issued a 1099. Work with your bookkeeper to determine who you need to send 1099s to. Ideally, send them out before you meet with your tax preparer.
  • Gather Up Your Receipts – What kinds of assets did your business acquire in 2018 – computers, machinery, work vehicles, furniture, equipment? Assets can be defined differently, but typically they cost more than $500 and will be in use for more than one year. You may be able to deduct these expenses from your taxes, just keep in mind that you must deduct the depreciated price, not the purchase price. Giving your tax preparer receipts makes it easier to calculate depreciation and report the correct amount on your tax return.
  • Check Your Loan Balances – When you meet with your bookkeeper, confirm that the balances on the books (i.e. your balance sheet) match the balances on your loan statement(s). Then, provide your tax preparer with these statements so that they can correctly record your liability. Keep track of your loan balance and the amount of interest you paid each year.
  • Itemize Meal Expenses Carefully – You can deduct 50% of the cost of meals you buy for clients, and 100% of the meals you buy while traveling or for your employees. Take some time to figure out when and why you bought meals so that you can deduct as much as possible. Remember, the business owner (or an employee) must be present and the food or beverages are not considered lavish or extravagant.

With just a few weeks left to file, you and your tax preparer may be looking for answers, assistance, and guidance. If you’ve met with your CPA or bookkeeper, tracked your expenses all year, and are prepared to file on time, congratulations — you’re in great shape. But if your business’ tax situation isn’t all smooth sailing, don’t worry. We understand the challenges of running a small business and we’re here to help.

If your business owes back taxes, you cannot pay your current tax bill on time, or you are facing other legal matters with the IRS or State of California (i.e. audit or investigation), contact Milikowsky Tax Law today to get support from a team of experts in small business and tax law.