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Tips on Preparing for Tax Season

Preparing for tax season is a task many business owners dread, but using a checklist can help ease the pain.
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Preparing for tax season is a task many business owners dread, but using a checklist can help ease the pain.

Your To-Do List for Year End

  1. Gather receipts for deductible business expenses and fixed asset purchases, and record all transactions for the year. Include any fixed asset purchases, disposals, and trade-ins. Don't forget business expenses paid with personal funds, business travel and business meals, and manual checks written and not recorded. If using a home office for business, compile receipts and information like total home square footage; office space square footage; and receipts for utilities, property taxes, repairs, and maintenance.
  2. Clean up your accounts, making sure no personal transactions are treated as business transactions.
  3. Prepare and send any customer invoices for product shipped or services rendered.
  4. Prepare for year-end physical inventory.
  5. Ensure your mileage log for business travel is complete.
  6. Watch your mailbox or email inbox for documents such as Forms 1099, payroll reports, bank statements, year-end statements for loans and notes payable, and credit card statements including interest paid during the year.
  7. Reconcile accounts in your accounting software to source documentation such as cash balance to bank statement, loan principle balance to statement, and payroll accounts to payroll reports.

Staying on Top of Tax Law Changes

Whether you prepare your taxes yourself or outsource the work, you should be aware of tax law changes to ensure you are compliant and take advantage of every tax break possible.

Each year, Congress passes federal tax legislation. The legislation can include reinstating tax breaks that are scheduled to expire, introducing brand new laws, or changing current laws (a common example is increasing deduction amounts based on inflation). Unfortunately, not all congressional decisions are done in a timely manner; some don't take place until the first quarter of the following year.

Questions to Consider:

  • Are any tax breaks expiring this year that we could take advantage of?
  • What are the limits for deductions that affect my business, such as the section 179 deduction for the purchase of qualified assets?
  • Should our plan to purchase machinery or equipment be accelerated to occur before the end of the year?
  • Do we qualify for any small-business tax credits?
  • If we don't offer a retirement plan, should we put one in place at this time?

 

 

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