BUSINESS TAXES


Business Tax Preparation

Preparing your own business tax return, especially for the first time, can be a frustrating experience if you don't have all the necessary information at your fingertips. Gathering certain documents before you begin will help you fend off the frustration.

Here's a list of items you may find helpful when preparing your business tax return:



Last Year's Business Tax Return

Your previous year's tax return provides valuable information and can serve as a good roadmap for making your way through this year's return. For example, if you are preparing your own return for the first time, your prior-year return can verify the following:

  • The method you use for tracking your business finances (cash vs. accrual)
  • Your federal tax ID number
  • The date you incorporated or started your business
  • The date you elected to become an S corporation
  • Your business code number and business activity descriptions
  • The method you use for tracking your inventory (if applicable)
  • Your beginning balance sheet amounts (these will be the prior year's ending balance sheet amounts on Schedule L)
  • Shareholder or partner information if there are no changes

Your previous year's return also is a great comparison tool once you complete your current-year tax return. It can raise red flags about possible missed deductions or items that seem unusually large or small in comparison to the prior year.

Advertisement

Articles of Incorporation

If you don't have your prior-year tax return or are filing a tax return for a newly incorporated business, your articles of incorporation provide certain necessary information.

  • List of officers
  • List of shareholders and possibly ownership percentages (if an S corporation)
  • The state in which you incorporated your business

Partnership Agreement

Without a prior-year tax return your partnership agreement is the best source of the following:

  • Date the partnership started
  • List of partners
  • The amount of money each partner initially put into the partnership, and current ownership percentages
  • Details about any specific income or expense items that are NOT allocated based on profit, loss or ownership percentages
  • The method you use for tracking your business finances

Accounting Records

Income and expense records are the basis of your tax return. Depending on your level of gross receipts and assets, you may need balance sheet information as well. If you use accounting software, such as QuickBooks or Quicken, to record your financial information, print out a Profit and Loss Statement and a Balance Sheet for quick reference as you begin your tax return. If not, you may wish to compile this information in an Excel spreadsheet. Regardless of which software you use, organizing your accounting records makes tax preparation much easier.

Bank Statements

Your bank statements or checking account records are a window into your income and expense activity for the year, particularly if you don't already have organized accounting records. Analyzing deposits and expenditures will enable you to categorize income and deductions to prepare your tax return. It's a good idea to reconcile your ending cash balance to the checking account balance on your last bank statement of the year to ensure you've captured all cash transactions in your accounting records.

Credit Card Statements

Small business owners often don't have time to keep track of day-to-day expenditures such as gas, parking, meals, supplies, equipment and other items. But knowing how much you've spent on them can be important at tax time when it comes to calculating your write-offs. Your credit card statements can be a big help in sorting out these expenses, so keep those statements handy. Particularly valuable will be a year-end summary statement which breaks down expenditures by category, if your card issuer provides one.

Payroll Reports

Your payroll tax filings, both federal and state, will help ensure that you have the correct payroll and payroll tax expenses in your accounting records. Remember that the payroll taxes you withhold from your employees' wages are not an expense to the business.

Detail of Asset Purchases

Major assets you buy for the business often aren't fully deductible in the year they are purchased but must be written off, or depreciated, over a number of years. Have the following information available for these assets:

  • Cost of the asset, including any sales tax paid
  • Description of the asset
  • Date put into service
  • Amount of time the asset is used for the business (versus for personal use), stated as a percentage of total use

Depreciation Schedules

If you're preparing your own tax return for the first time, you'll need to enter the details of the business's existing depreciable assets up to this tax year into the software. The software will calculate the depreciation on these assets going forward. You'll need the following:

  • Description of the asset
  • Date put into service
  • Original cost of the asset
  • Accumulated depreciation up to this tax year
  • Business use percentage (if applicable)
  • Recovery period of the asset (3 years, 5 years, 7 years, etc.)
  • Any Section 179 Expense (or first-year expense) taken in the first year of service

Detail of Asset Dispositions

If your business sold any depreciable assets during the year, you'll need the following information to calculate any gain or loss on the sales for tax reporting purposes.

  • Description of the asset
  • Date of sale
  • Sales price of the asset
  • Any expenses of the sale
  • Accumulated depreciation (if not calculated by the software)

Vehicle Information

If the business owns any vehicles that are used by employees or shareholders/partners for personal and business use, you'll need the following mileage data:

  • Miles driven for business
  • Personal miles
  • Commuting miles

Taking a little time to gather your tax-related documents will pay off, in time saved and frustration eliminated.

Return to the Tax Center


You can get valuable updates from Kiplinger sent directly to your email. Simply enter your e-mail address and click "sign up".

More Sponsored Links


DISCUSS

Permission to post your comment is assumed when you submit it. The name you provide will be used to identify your post, and NOT your e-mail address. We reserve the right to excerpt or edit any posted comments for clarity, appropriateness, civility, and relevance to the topic.
View our full privacy policy


Advertisement
Get valuable updates from Kiplinger directly to your e-mail

Market Update

Advertisement

Featured Videos From Kiplinger