As a small business owner (SBO), you do it all. But when it comes to your accounting, finances and taxes, it may be a good idea to work with an accounting and/or tax expert—especially if you’re still in the early stages of business development. An expert can save you time by assisting with tracking and analyzing your finances and keeping your records up-to-date and accurate. And more importantly, an experienced expert can help build value by helping you cut costs, grow profits and scale your business. At minimum, a good tax expert should reduce your tax liability by $5,000 as opposed to you doing your taxes on your own.
But, it all starts with you knowing exactly what he or she needs to help you Save Time and Build Value.
Tax Season happens every year, but when you try to think back to the last time you filed, it all seems like a blur.
“What do I need to give my accountant again?”
“Was it the 1099NEC that I needed for each worker, 1099-K or 1099-MISC?”
“What about that fleet vehicle that was totaled and was replaced with a new purchase earlier this year?
Generally speaking, your tax accountant needs two things from you during tax season.
1.) First, they need an organized list of personal and financial information.
2.) Second, they need your business bookkeeping to be in order.
There is a difference between a bookkeeper and a tax accountant. Often, tax accountants get people who walk-in with a box full of receipts and that’s it. Now, a tax accountant can organize or as we call “clean up your books” for you, however, a tax accountant’s rate is usually 3-4 times that of a bookkeeper. So, keep that in mind if this is you and you receive a hefty bill.
If you can’t afford a bookkeeper throughout the year, a simple accounting software package that costs less than $15 bucks per month will more than pay for itself and you’ll reap huge benefits when you’re trying to find ways to cut costs, increase profits, and/or scale your business. Plus, you might just get promoted to your accountant’s A-list of clients.
Below are two important lists of almost everything you’ll need to give your tax accountant whether you’re filing taxes as a sole proprietor or single-member LLC, partnership or multi-member LLC, a C corporation, or an S corporation.
Personal Tax Organizer List
You’ll need to provide these documents and records, regardless of what kind of business entity you operate. Provided your accountant doesn’t have them already, these documents and records will contain most of what your accountant will need to get things rolling. They include:
Personal Tax Organizer
- ID Card Verification – w/legal name, address, and date of birth (anyone else who’s on you return)
- SSN Card Verification – Social Security Numbers/Individual Taxpayer Identification Numbers
- Your previous 2-3 year’s federal, state, and/or local (Personal) tax returns
- Last year’s Self-Select PIN (Visit the IRS’s Retrieve Forgotten IP PIN page, if forgotten)
- Last year’s adjusted gross income (AGI) amount
- Copies of Tax Forms, Receipts and/or Statements:
- Bank & Credit Card Statements
- Charitable Contributions/Donations – receipts
- Canceled Debts (that have been forgiven) – 1099-C
- Education expenses – 1098-T , & other receipts
- Energy efficiency property expenses
- Gambling & Prizes – W-2G, 1099-K, 1099-MISC
- Income from Business Activities – K-1
- Income from Employment – W-2
- Income from Hobbies, Royalties..etc. – 1099-NEC, 1099-K, 1099-MISC
- Investments & Savings – 1099-B, 1099-INT, 1099-DIV, Consolidated Statements
- Insurance Documents
- Loan Document & Statements
- Medical & Dental expenses – receipts
- Moving expenses – receipts
- Mortgage Interest & Real Estate taxes – 1098 and/or tax receipts
- Purchase Agreements & Documents – Bill of Sales & receipts
- Rental Property Income Statements
- Retirement Income Distributions – 1099-R, CSA 1099-R, CSF 1099-R, or RRB 1099-R
- Social Security – 1099-SSA, SSA-1042S
- Taxes Paid on Foreign earned income
- Taxes Paid to State, County, and Cities – 1099-G
- Tax Prep Fees from prior year – receipts
- Unemployment – 1099-G
- Union Dues – receipts
- Unreimbursed Employee Expenses – receipts
Copies of ANY and ALL OTHER Tax Statements you’ve received from different sources.
Business Tax Organizer List
If you’ve filed your Business Taxes before, you’ve more or less assembled documents, statements, and reports in your organizer for one of several business entity types that file taxes on either a Schedule C, Form 1065, Form 1120 or Form 1120S.
Both Sole Proprietors and Single-Member LLC report their business earnings through Schedule C, which is attached to your personal tax return, Form 1040.
Sole Proprietorship & Single-Member LLC
If you’re a newbie and work by yourself, you’re most likely a Sole Proprietor or Owner of a Single-Member LLC. Here’s a quick tutorial within this tutorial:
A.) “Sole proprietorship” is a fancy term for one person who owns a business and is on the hook for any company debts. If you work alone, registered as a sole proprietorship with your state or county clerk, and never incorporated your company, you’re probably a sole proprietor.
B.) If you’re the Single Owner of a Single-Member LLC and don’t elect to be taxed as a corporation, you’ll also file your taxes as a sole proprietor.
If this is you, you’ll make sure to include these basics within your Business Tax Organizer for your accountant.
- Business Tax Profile Organizer List (Part A)
- Your previous 2-3 year’s federal, state, and/or local (Business) tax returns
- Your Company’s Articles, Operating Agreement, and addendum (changes)
- Your Company’s Business Licenses filed with your State and Local governments
- Your Company’s Employer Identification Number (aka “EIN,” or Federal ID Number)
- Significant Business Agreements and Contracts
- Total amount of quarterly tax payments you made in the past year, with dates paid
- State and local payroll taxes paid (which you can easily dig up if you use an online payroll provider).
- All of your employee and contractor-related tax forms
NOTE:
You’ll need to distribute a Form W-2 for each employee, to report any wages, tips, and other compensation you paid them during the tax year—make sure to get those together well ahead of tax time (by January 31st deadline). If you withheld taxes from an employee’s paycheck, you might also need to file Form 940 and Form 941.
If your business paid $600 or more to a contractor or professional (i.e. someone who worked for you or provided you with a service but is not an employee), you’ll also need to distribute Form 1099-NEC (formerly 1099-MISC) for each one by Jan 31st.
If you’ve got these basics covered in Part A of the list, you’re mostly done. But there are a few specifics to the list (Part B) your tax accountant will need depending on your business and other entity types:
- Business Tax Profile Organizer List (Part B)
- An Income Statement, including Cost of Goods Sold (Direct Costs), Profit & Loss, Balance Sheet
- An income statement lists all of your revenue and expenses over a certain period, and helps you figure out how profitable your company is. “Cost of goods sold” refers to how much it cost you to produce and deliver all of the products or services you sold that year.
A Trial Balance – A trial balance is a summary of all the business transactions your company made over the course of the year, organized by account type. Your bookkeeper can provide this for you, particularly if you’re consistently using business accounting software.
Deductible Expenses (all financial records relating to deductions) – Each of these relate to a deduction that your business could potentially claim on its next return. Although your accountant might not end up using them all, make sure you’re include everything and hold onto all of your original records and receipts just in case:
- Deductible Expenses:
- Accounting-Related Expenses
- Advertising & Marketing Expenses
- Automobile Expenses & Mileage Records
- Bank and Credit Card statements
- Charitable Contributions/Donations
- Education & Training Expenses
- Insurance Expenses
- Legal and Professional fees
- Meal Expenses
- Office Expenses
- Payroll & HR-Related Expenses
- Rental and Leasing Expenses
- Taxes Paid
- Telephone & Communications Expenses
- Travel expenses
- Utility expenses
- Other Expenses
If you’re a partnership, all partnership-specific tax forms
Partnerships file the U.S. Return of Partnership Income (or simply, Form 1065), and each individual member of the partnership also files a Schedule K-1, in addition to their personal tax return (Form 1040).
Partnerships and Multi-Member LLCs
Partnerships involve two or more parties working together to form and operate a business. The main types of partnerships are general partnership, limited partnership, limited liability partnership, and limited liability companies (that choose to be taxed as a partnership).
If you and at least one other person contribute money, property, labor, or skill to a business and expect some kind of return, have received an Employer ID Number from the IRS, and have never incorporated, you’re probably a partnership.
If you run a multiple-member LLC and don’t elect to be taxed as a corporation, you’ll also file your taxes as a partnership.
Include all partnership-specific records and information. It can be easy to miss these if you have many partners to keep track of, or do business in multiple states.
- Partnership records that are usually forgotten include:
- List of all states where your business has nexus (a connection)
- Your partnership or operating agreement, bylaws, and any amendments you’ve made
- Names, addresses, and the SSN/EIN of each partner for the tax year
- Partner reports for owner contributions, withdrawals, loans, guaranteed payments, compensation, and benefits.
If you’re a C corporation, all C corporation-specific tax forms.
C corps use Form 1120 to report their income. If you filed one last year, make sure to give it to your accountant.
C Corporation
A C corporation is a company that is taxed separately from its owners (aka “shareholders” or “stockholders”). If your company has filed Form SS-4 to obtain an employer identification number (EIN), has a board of directors, and holds regular shareholder meetings, it’s probably a “C corp.”
All C corporation-specific records and information can be easy to miss, especially if you do business in multiple states. Some records that people usually forget include:
- -C-Corp forgotten Document, Statements:
- List of states and their ID numbers where your business has reporting requirements
- Your articles of incorporation or bylaws, including any amendments
- Each individual or entity owning 2% or more of a corporation’s stock, and their information (name, address, TIN, and percentage owned)
- For multi-state businesses: report sales, payroll, and property values for each state
- Granted credit certificates issued by federal or state taxing authorities
- C-Corp asset & liability records which include:
- Prior year depreciation schedules that include: asset cost, date of acquisition, prior depreciation, and business use percentage
- All assets acquired within the year with: date of purchase, cost, trade-in allowance, and business use percentage
- Sales proceeds from any assets disposed of during the tax year, along with: date of purchase, cost, trade-in allowance, expenses of the sale, and accumulated depreciation.
If you’re a S corporation, all S corporation-specific tax forms.
S corps use Form 1120S to report income. If you filed one last year or maybe you’ve converted from last year, make sure to give it to your accountant whichever form you used.
S Corporation
The S Corporation is a little different from the others. It’s not really a State-issued organizational entity. It’s actually an IRS – Internal Revenue Code tax-exempt designation also known as S subchapter that can be granted to a regular corporation or an LLC. Corporate taxes filed under Subchapter S may pass business income, losses, deductions, and credits directly to shareholders/members without having to pay Federal corporate taxes.
S Corp status effectively gives a business the regular benefits of incorporation while enjoying the tax-exempt privileges of a partnership.
Here if you own part of an S Corp, you’ll receive a K-1 as a part of the 1120S filing. Shareholders report
income and losses on individual tax returns, and pay taxes at ordinary tax rates.
Bottom Line
The most obvious starting point for when you may want to start considering a Tax Accountant and Tax Services relates to the schedules you file for taxes. If you simply file 1040, you may not have the complexity to justify a Tax Accountant directly. However, if you find yourself needing to file for your real estate, business, trust, or any combination of the above, a good tax expert certainly may be worth exploring in addition to your existing financial relationships.
It pays to be compliant and prepared, even when you’re having someone else prepare your taxes for you. Make sure you provide your accountant with all of the necessary information. Be proactive about gathering your finances into one place (an Organizer), so that you won’t need to worry before filing deadlines. If you provide your accountant with everything they need, you should have a hassle-free tax season ahead of you.
If you have questions, we’d be glad to chat with you and provide personalized recommendations for your situation, and determine what type of services that may be best for you. Schedule a FREE introduction call today!