Prepping for your CPA
Before you go to your tax appointment, you should have your entire year of bank statements, major receipts, invoices, contracts and anything else that indicates clean records. A clean record is one with proper support. If your business wants to record something as an expense, there should be a supporting document like a receipt or invoice to back it up.
Last year’s tax return
Social security numbers
Employer identification number
W-2s and 1099s
Digital currency transactions
Deductions and credits
Business mileage and purchases
Itemized deductions (mortgage, state and local taxes, medical expenses)
Software saves time
Accounting software is invaluable for storing your financial data. It can help with anything from invoicing and billing to tax filing. Need a report of your cash flow for a last-minute meeting? That can be done in a click of a button. The convenience and accuracy of accounting software are unmatched. Check out QuickBooks. It’s built to be user-friendly for people with little to no background in accounting. A strong outside CPA will happily guide you on how to navigate and mold your business's accounting software to work best for you.
Helpful hint: The biggest pet peeve Zachary has heard from tax preparers is customers failing to book all entries that the CPA sent when they were preparing their taxes last year. In these cases, the CPA has to go back to the last year and reconfigure what the adjusting journal entries from that year were in order to accurately complete the current tax return. Software can help you avoid being that client!
Quarterly is king
April can be unnecessarily expensive for new business owners as they realize they owe a larger-than-expected tax bill. This is likely because they didn’t pay their estimated taxes quarterly for the prior year. The goal is to pay all the taxes within the year that you are filing to lessen the burden at the end of the year. We understand some clients don’t want to pay during the year, but it’s important to know sometimes you don’t have that option.
The IRS may expect you to pay quarterly tax payments if:
- You’re self-employed and do not have more expenses than income
- You expect to owe $1,000 or more in taxes for the year (after deductions and credits)
Take advantage of tax deductions
Most businesses are not aware of all the tax deductions that may apply to them. Below are links to different IRS deductible pages that may surprise you. Dry cleaning definitely caught us off guard.
- Work From Home
- Advertising and Marketing
- Meals and Entertainment
- Client and Employee Gifts
- Profit Sharing
Remember, if you’re talking business, it can be written off as business! Tom Wheelwright, a leading tax and wealth expert, CPA and author of "Tax-Free Wealth" says even meals with spouses where business is discussed is legally a deductible.
There are many industry- and entity-specific tax deductions that every business qualifies for. You can file your deductions with the most confidence and ensure you haven’t missed any opportunities with a trusted CPA by your side.
Businesses are required to keep their tax records for five years, but CPAs recommend seven years to be safe. Why? Well, even if you don’t need records for your taxes, your insurance or financial institutions may still require those documents for applications down the road. In addition, day-to-day records should be captured and stored securely and electronically and backed up at least weekly so that the files are safe.
Here's a good rule of thumb for keeping records according to Meyers Brothers Kalicka Certified Public Accountants.
- W-2 forms
- Payroll tax returns
- Retirement plans
- Payroll tax records
- Workers' compensation
- Employee-withholding-exemption certificates
- Tax records
- Payroll checks
- Payroll records
- Time reports
- Attendance records
- Medical benefits
- Commission reports
- Contractor information
- Tip substantiation
- Bank statements
- Pay stubs
- Utility bills
Despite popular belief, filing taxes is not a clear step-by-step process. The best tax preparers know that tax preparation is an interpretation of tax law. To take advantage and not fall victim to missing something, hire the best CPA your business can afford – it’s worth your peace of mind. Here’s to a smooth spring and happy filing!