The heady rush of the 2017 tax season is almost upon us. Although there are still a few weeks left to prepare and file, now is a great time for small businesses to step back, spend some time with their books, review any tax code changes with their tax advisor, and get ready to file accurately and on time.
8 Items to Check Off Your Tax Checklist
Know Your Deadlines
This year, Tuesday, April 18 is tax day in the U.S. and the deadline to submit 2016 returns. The deadline usually falls on the 15th, but got bumped because it’s a Saturday (and Monday is a holiday in Washington, D.C.).
Consult your tax preparer to see what their timeframe is for a timely filing and when you need to hand over documentation and records.
Create a Checklist
Create a simple checklist of everything you’ll need come tax time (read on for suggestions as to what to place on that list). This includes all your financial records, as well as other things that can be hard to track. For example, if you’re a freelancer, keep a log of who’s sent you a 1099 form and who hasn’t.
Make Sure All Payroll Information is Accurate
This year, the deadline for filing W-2s changed from February 28 to January 31. This accelerated filing means your window for verifying the accuracy of employee information was much shorter. If you do still need to make corrections after filing W-2s with the Social Security Administration, you’ll need to fill form W-2c. The new January 31 filing deadline also applies to certain Forms 1099-MISC reporting non-employee compensation, such as payments to independent contractors. Read more from the IRS.
Spend Some Time with Your Books
Whether you use a spreadsheet or an accounting program, spend some time making sure all your accounts are up-to-date and that you can account for every line item. Then check that all your deposits add up to your gross revenue. Freelancers need to make sure that these amounts match the 1099s issued by clients.
Itemize your Expenses
Verifying your bookkeeping includes making sure that your expenses are documented properly. The IRS requires that each expense is accurately recorded, including the amount paid and a description that shows the amount was for a business expense. For example, if you travel to a client meeting, keep a record of the miles travelled, the reason for the meeting, name of the hotel if you stayed overnight, the date, and any other expenses. Read more about what the IRS considers “documentary evidence” to support any expense claims.
If you work from home, don’t forget to determine the square footage and percentage of space used by your home office so you can claim the home office deduction.
You’ll also need to categorize your expenses into buckets such as utilities, office expenses, office supplies, contractors and freelances, travel and entertainment, etc. Accounting software can make this easy.
Prepare your Reports
It’s never too early to start pulling together all your accounting reports. Being organized early on will make it much easier to complete your return. This includes:
- Profit and loss statement
- Balance sheet
- Cost of goods sold (including beginning and ending inventory amounts, materials and supplies, etc.)
- Expenses (marketing, utilities, travel, depreciation, business insurance, office supplies, training costs, home-office expenses, etc.)
- Any interest earned from savings or checking accounts
Read more from the IRS on what kind of records you should keep. Good organization can’t be underestimated and can help you out in a big way if the IRS chooses to audit you. Here are some more tips to avoid an IRS audit.
If you don’t already have an accountant, now is the right time to seek one out. Small business taxes are increasingly complicated, especially if you have employees and offer healthcare plans. Seek recommendations from friends and peers – someone who has experience in your industry can be especially helpful. An accountant who has experience with your tax software is also a plus since most cloud-based accounting software lets you share your records securely online with a tax preparer.
Make a Tax Preparation Appointment
Now that you have an accountant, or if you have one already, lock down an appointment to get your taxes prepped. If you do them yourself, block off your calendar and make a commitment to get it done.
Disclaimer: The information in this blog doesn’t replace the advice of a tax or legal expert. If you have any questions about your small business tax situation, talk to a professional.