What’s in your shoebox?
Many small-business owners start a company without having any idea what is required for small-business tax payments and documentation. When year-end arrives and it’s time to prepare business taxes, piles of paper receipts and handwritten mileage on Post-it notes are an all-too-common occurrence. Armed with a little knowledge, small-business owners can streamline their year-end tax preparation and reduce the amount of hours their accountant spends sorting through the proverbial shoe box of receipts.
First, organize your data. The key to proper tax filings is having proper documentation for all your business’ expenses. Whether you keep handwritten records or use electronic accounting software such as QuickBooks, having those receipts organized by date will make verification faster. The IRS recommends keeping records and receipts at a minimum of three years, but accountants will advise much longer. Keep receipts and backup data a minimum of five to seven years and always maintain tax filing records, even for businesses that have closed.
Take the time now to call your accountant and schedule an appointment to review your tax file. Having a deadline date will help keep you on task for gathering all your documentation. As a general rule of thumb, the items to always have at the ready include all areas of your business where you can demonstrate income and expenses.
Among income items, those that are provided to you from payers are:
• W-2, Statement of Wages and Salaries
• 1099-DIV and 1099-INT, which reflect dividends and interest payments made to you
• 1099-B, Statement of Capital Gains, issued for the sale of assets
• K-1 income from a partnership, small business or trust
• Any documentation of income such as self-employment, rental or alimony
Items showing expenses include:
• Monthly bank statements, including checking, savings and any special savings funds such as certificates of deposit or other investments.
• Checkbook register
• Payroll records, including tax payments
• Any quarterly tax payments made to federal, state and local agencies
• Sales slips, receipts and invoices for items purchased in the business. This is of particular importance in the event of a capital expenditure. Enhancements to the Section 179 deductions are available for qualifying purchases made in 2008 up to $250,000.
• Written receipts or communications from charitable contributions
• Vehicle maintenance and mileage related to the business. Be aware that mileage deductions changed effective July 1, 2008, from 50.5 cents per mile to 58.5 cents per mile. You’ll need a mileage log and receipts for tolls, fuel and parking if you want to take the deductions.
If the tax preparer or accountant is new to you this year, you’ll want to bring along copies of your previous year’s tax filings. This will provide a baseline for what you have done in the past and help to start a conversation regarding changes that may have occurred in 2008.
Most accountants also provide their clients with an annual organizer that asks questions about changes that may have occurred during the previous tax year.
For additional information, check out IRS Publication 552, “Recordkeeping for Individuals.”
For sole proprietors filing as a limited liability corporation, or LLC, it’s particularly important in New Hampshire to provide your tax preparer or accountant with a federal ID number for the LLC, or a New Hampshire Department of Revenue Administration-issued ID. This action is necessary, as the state is enforcing that LLCs file their own tax return with the state separate of any other activities.
A company’s inability to quickly review key financial data can prohibit decision-making and leave a business vulnerable to dramatic market shifts. By taking the time to organize business records, you’ll save time, money, and be better prepared to respond to economic changes.
CPA Steven Feinberg, owner of Londonderry-based Appletree Business Services, can be reached at 603-434-APPLE (2775) or www.Appletreebusiness.com.
