Preparing for and dealing with taxes can feel like the worst. With a total of 2,652 pages of US tax code how could you not find the whole process overwhelming? Before you get too stressed out, that’s why accountants exist! And we are here to help. It’s our full-time job to make sense of the complex tax system so you don’t have to. In January, the best thing you can do before meeting with your accountant is pull together the preliminary necessary information and cleaning up your records.
Step One: Pay your quarter 4 estimated tax payment by January 15th
If you are required to pay quarterly tax payments, don’t for get to submit you Q4 payment by January 15th. It’s easy to get wrapped up in year end reviews and start thinking about tax filing as a whole and forget that you still have one lingering quarterly payment. If you don’t pay that last payment when you’re required, you could incur some penalties. And if you forget to pay this last quarter, you’ll also likely get hit with owing some significant taxes when you file. This will come as a nasty surprise that’s completely avoidable when you send in that last payment before looking at your year as a whole.
Step Two: Reconcile your books and clean up accounts receivable and payable records
We highly recommend QuickBooks for balancing your business books. Most of their programs offer an opportunity reconcile their system with your accounts to be sure everything is accurate. Before going to the accountant, take an hour or two and do a first sweep to reconcile your accounts – all your accounts. This means credit cards, loans you might have, any lines of credit, payroll, bank accounts and assets. Once you’ve review these and feel confident it all looks good, run a balance to see if the debits equal the credits as a way to double check.
Next, look at accounts receivable and payable. You want to make sure you have invoices and records of all the money you’ve received in your business that year and that its properly documented in QuickBooks or the accounting software of your choice. Once those look good, move on to accounts payable. You want to confirm that you have accurate records of supplier payments and confirm that you don’t have any unpaid outstanding bills before closing out for the year.
Step Three: Review your year. Did you earn what you thought?
At a high level, did this year go as planned? It’s a great question to ask yourself so you don’t feel caught off guard. Say you typically earn $80,000 in a year and paid quarterly tax payments that reflect this typical amount but you’re noticing you had an exceptional year and earned $130,000. If this is the case, congratulations! The only thing you should be aware of is you will end up owing more in taxes because of the increased revenue that may not have been covered on your estimated tax payments that were based on the assumption that you would make $80,000. If you find this to be true for you, consider next year checking in with your accountant periodically through out the year to double check that your estimates are on target.
Step Four: Send out W-2s or 1099s by January 31st
If you have payroll employees or you’ve paid someone $600 or more in services, you’ll need to send out W2s and 1099s by the end of January. This is critical because your employees and subcontractors need that documentation to be able to file their taxes in a timely way. You can find instructions and forms on 1099s on the IRS website but if you have any questions, we can help you navigate this process to be sure you are sending accurate information.
Step Five: Collect all financial statements, business vehicle information and home office expenses
- Cash flow, balance sheet, income statements, summary of assets and expenses
The beauty of something like QuickBooks is that you’re able to add your accountant to your account with most of their plans. This means, your accountant will be able to jump in there and not only get the information that they need but also can look through those records and do a second pass to confirm you’ve recorded and reported everything correctly. When you are collecting information for your meeting with your accountant, add them to your account ahead of time and bring in these printed statements to your meeting.
- Vehicle Use
The IRS lets you deduct a portion of your car costs if you use it for business purposes in one of two ways. The first is calculating the miles you drove for business and claim a deduction at a standard rate of 58 cents per mile for 2019. The amount per mile does have the potential to change from year to year. We love apps like MileIQ or others like it that simplify tracking and reporting the business usage of your vehicle. It’s a simple way to keep an eye on the miles you put on your vehicle to support your business.
The other way is a little more complex. This is when you track the actual vehicle expenses. You’ll add up the operating expenses which include the cost of the loan including interest, maintenance, insurance and any additional expenses and then divide by the miles you drove for business by the total miles you drove in your car for that full year. We don’t usually recommend this because the tracking process is much more cumbersome.
- Summary of home office expense
If you work out of your house, you are likely eligible to take home office dedications. This is where you claim a portion of your home expenses, like insurance, rent or mortgage interest, utilities, internet services etc. as a deduction. To prepare to meet with your accountant, collect your home expenses for the full year and bring that paperwork. Your accountant will be able to sort through what percentage is reasonable to claim.
Phew! If you make it through these 5 steps, you are ahead of the game and ready to take on tax filing for 2019. This may feel like a long list but if you have been keeping accurate records through out the year than it shouldn’t be to bad to review. If you did find this to be overwhelming, consider checking in on these records at least quarterly coinciding with your quarterly tax payments so that it doesn’t hit you all at once at year end.
If you are stressing out, don’t go to far before reaching out for some help. That’s what we are here for! Schedule an appointment and we can help get the ball rolling.
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