Preparing To Get Ready for Your Tax Accountant

Small business owners must comply with various federal, state and local policies in an extraordinarily complex tax system. Although tax season hasn’t officially begun quite yet, it is prudent to consider the existing tax structure, as well as review any upcoming changes, that apply to the Internal Revenue Service and other taxation entities, and to get your documents in order for your accountant.

Balance Sheet

First, review your Balance Sheet. On the Assets side, start with the bank accounts – each account should be reconciled with the bank statement. If you have old transactions on bank reconciliations that have not been reconciled, these should be voided or deleted. If you send invoices to your clients, your Accounts Receivable should agree with the Accounts Receivable Summary. If old receivables meet the definition of uncollectable, consider writing these off. If you sell inventory, see that your physical value matches what you are reporting. Look through the details of your fixed asset accounts and consider whether small amounts (less than $2,000) should be expensed, instead of capitalized. Your accountant can provide depreciation and amortization expenses to you, in order to keep your books in line with your tax return. Look for any accounts on the Balance Sheet that don’t look familiar, and investigate and correct the transactions in these accounts.

Besides accumulated depreciation and amortization, you should normally have only positive numbers on your Balance Sheet. As you continue reviewing your Balance Sheet, look at the liabilities section to see that this includes all of the items owed by the Company. See that your payroll tax liabilities reported match what you will pay in January of the following year for the prior year’s obligations. The same goes for your sales tax liability accounts. Also, review any loan account balances and make sure these balances match with the details of what is outstanding on the Company’s loans. If monies have been loaned to the company during the year, the loans should be recorded as a liability, but they are sometimes recorded as income. Be sure that all debts are listed on the Balance Sheet. Listing all debts on the Balance Sheet will help prevent overstating the income.

Profit and Loss Statement

Next, review the Profit and Loss Statement. As with the Balance Sheet, you should normally only see positive numbers. Negative numbers should be reviewed for correctness. Look for accounts in the income section that might contain monies loaned to the company. The funds received should be reported in the liabilities section, and not in the income section. Similarly, look at the accounts in the expense section by name, such as loan payments and change the transactions in these accounts, to apply against the loan accounts on the balance sheet.

Payroll Expenses

Payroll expenses are often a large expense for companies. Tax accountants often want to see the W-3 and W-2 forms for the company. Recent increased IRS security measures require the information that is reported in the business returns to match the payroll reporting. Tax returns now also report whether 1099s were issued, as required, so providing these returns is also helpful for your accountant.

Companies with owners who have incurred expenses but have not yet been reimbursed for them will need to provide the details of this information. Mileage is a good example of this kind of expense. If your only office is in your home, this may also apply.

Accounts containing expenses for meals, entertainment, charitable contributions, gifts, owner health insurance, disability insurance and life insurance, just to name a few, should especially be separately stated, as these types of expenses require special reporting on returns.

Make It Easy on You and Your Accountant

Most tax accountants don’t want to have you back up a truck and offload boxes of receipts.  Bank statements, credit card statement and loan statements, especially for the last month of the year, are often helpful. Remember to also include the W-3s, W-2s and 1099s. If your tax accountant can start and complete your return in one sitting, you both will win!

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