A Checklist for Getting Your Small Business Tax Compliant

Every year American taxpayers must confront what is arguably one of the most complex tax codes in the world. But nobody has it harder than small business owners, who must be able to navigate many additional layers of nuanced tax rules that make tax compliance challenging. Because of that, many small businesses overpay their taxes each year. Others underpay. In either case, the mistakes can be very costly.

Business owners must take extra measures to ensure they are in compliance with federal tax laws.

Your Tax Compliance Checklist

To get a jump on tax filing season, here’s a checklist you can follow to ensure you file an accurate return and take full advantage of what the tax code has to offer.

Meet with your bookkeeper now. You need to get your ducks in a row early in the year. That starts with meeting with your bookkeeper or accountant to review your accounting records and verify all your entries. Meeting early on gives you time to resolve any potential discrepancies. It will also give you more time to review your financials, including your General Ledger, Profit & Loss Statement, and Balance Sheet, before handing them over to your tax preparer.

Gather your bank statements. Your tax preparer will want to reconcile your bank statements to ensure that your income deposits match your reported income. To make their job easier and less time-consuming, gather your bank statements and compare them with your Profit & Loss Statement.

Separate business from personal expenses. You may have used personal funds to pay for business expenses during the year. You don’t want to miss out on any deductions, so review your personal bank account and credit card statements to identify business expenses.

Gather your receipts. Did you purchase any equipment during the year? Any asset costing more than $500 that’s expected to be in use for more than a year may be eligible for a deduction. Your tax preparer can determine how it is to be expensed.

Verify sales taxes paid. If your business is required to pay sales taxes, you must collect the documentation showing those calculations and payments and provide it to your tax preparer.

Verify your loan balances. Review your business loan statements to verify the balances match the balances on your Balance Sheet.

Make sure your yearly mileage log is current and correct. If you use your vehicle for business travel, make sure your mileage log is complete and accurate. You don’t want to miss out on the mileage deduction, but the IRS requires that you have a mileage log. Your log should include any other operating expenses for the vehicles used for business.

Add up any home office expenses. If you use a space in your home exclusively for business purposes, you can deduct a percentage of your mortgage or rent, utilities, repairs, insurance, and maintenance. You’ll need to provide your tax preparer with those expenses and the square footage of your home office space as a percentage of your home’s total square footage.

Double-check your meal expenses. You can still deduct 50% of the cost of meals you buy for clients and 100% of the meals you buy on the road (for you or your employees). But you need accurate records of the meals with receipts to back them up.

Issue your 1099s. If you paid out more than $600 to any non-employee, you must send them a 1099-MISC form before January 31. Your bookkeeper can tell you who needs to receive one. These are deductible expenses that should be recorded on your Profit & Loss Statement.

Set aside enough money for tax payments. If you anticipate owing taxes, set aside enough money to pay both your annual taxes as well as your quarterly estimated taxes.

Prepare for Next Tax Season Now

Preparing for tax season can be time-consuming and frustrating, especially if you wait until it’s time to file your taxes. If you develop the mindset that business owners' tax season is year-round, you can save time and resources while minimizing your frustration.

Meet with your CPA or tax professional now to consider any changes in tax law that could affect your returns. It’s also the ideal time to consider strategies for minimizing your tax liability for the current year.

 

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