As you prepare for your appointment with your business income tax preparer, what do you need to bring with you? Many small business owners know to bring standard financial documents like a profit-and-loss statement or balance sheet, they may not know to bring information about specific expenses paid during the year.
What are these special expenses you should make sure to point out to your bookkeeping professional? Here are a few of the most important.
1. Personal Expenses on the Books
Most small businesses pay at least a few personal expenses through the business accounts. Doing so, though, can have serious consequences when it comes to tax time as well as to any future legal entanglements. Personal expenses paid for individuals might be considered taxable compensation, and they may also pierce the veil that protects you from liability. Talk to your bookkeeper today about handling personal expenses in the right way.
2. Business Expenses Paid Privately
If owners, employees, or shareholders paid for some business costs out of pocket, these may often be of use on various tax forms. Most importantly, items paid by owners and partial owners are usually deductible by the company to reduce its tax liability.
Under current tax rules, individuals may not get any federal tax relief by claiming such expenses on their own forms. Both owners and employees, though, can often deduct such expenses on state taxes
3. Form 1099 Purchases
If you paid an unincorporated business or individual more than $600, your company generally must issue Form 1099 to them. If you haven't done this, your bookkeeper or accountant can often handle this task for you. If you have done these forms, your tax preparer will need to know so that they can correctly answer relevant questions on your income tax forms.
4. Asset Purchases
Did you buy any expensive or long-lasting equipment this year? If so, these items may need to be depreciated on tax forms. Depreciation is the act of taking the cost of the purchase as deductions over its lifetime rather than one single year. This is mandatory for some equipment although your preparer can also work with you to use various depreciation options strategically.
5. Estimated Tax Payments
Most businesses must pay at least some income tax throughout the year in expectation of a tax obligation at the end. If you made any payments, be sure that your preparer is aware of them. Otherwise, your company may overpay taxes at the end of the year or even see an automatic penalty calculation.
Every business has unique circumstances when it comes to their income tax filing. These reminders are a good start, but your best bet is to work closely and openly with your tax service. Don't have one yet? Make an appointment with an experienced provider in your area.