Five steps for tax time prep
It’s never too early to prepare for tax time. Follow these five steps to plan ahead.
It’s never too late to say Happy New Year. And it’s never too early to prepare for tax time. Follow these five steps to plan ahead:
1. Compile all financial details to submit to your bookkeeper or CPA
A little organization goes a long way. Start by assembling the information you may need for your tax return:
Copies of employee tax forms such as W-2s, W-3s, or 1099s
Copies of Form 941 and state unemployment forms
List of any new assets
Bank and credit card statements as of December 31, 2018 (necessary to verify balances)
Any new loan documents
Guaranteed payments for partnerships
2. Open and maintain separate business and personal accounts
When you first established your business as a separate legal entity, you were afforded liability protection. But when you mix business and personal funds, that protection is gone. Learn more about separating personal and business finances.
3. File and mail employee tax forms on time
Shelly Lingor, Xero partner and Director of Technology and Accounting for GCT Accounting, offers some great reminders:
“By January 31, 2019, you need to file and mail your W-2/W-3 to your employees and 1099 forms to all contractors to whom you paid over $600 last year. The IRS has increased its penalties for businesses that fail to send 1099s on time – so don’t be late.”
4. Review all eligible business expenses
Since you’re already prepping your 1099s, take the time to review all expenses and gather potential business-related deductions – especially receipts, invoices, and travel (which has to be verified through an updated mileage log).
Reviewing last year’s expenses is also a great way to plan for the new year. Recently, the Internal Revenue Service issued a clarification – which originated from the Tax Cut and Jobs Act (TCJA) – on changes to the meals and entertainment (M&E) rules:
Make sure general ledgers and accounting systems have a category to record pure entertainment expenses.
Separate entertainment from business meals and away from travel expenses. Travel is generally 100% deductible; except for the meals portion of travel, which is generally 50% deductible.
Don’t overlook exceptions to the standard 0% or 50% disallowance, such as recreation, reimbursed expenses, etc. Forgetting these exceptions may inadvertently limit your fully-deductible expenses, including lodging, airfare, transportation, training fees, etc.
5. Make sure your business accounting software works for you
Shelly notes that “your software should deliver a real-time view of your cash flow, help you gain insights to grow your business and allow you to customize features for your unique business needs.”
Accounting software automatically creates reports and maintains records of business transactions throughout the year – all centrally stored and backed up online. These features alone simplify the tax time prep. Also, banking transactions link to the accounting software to eliminate manual data entry, reduce paper, and save you time.