Preparing your expenses and sales receipts for filing your taxes can be a nightmare. Do you have your company related papers filed in a shoe box? Or, are you organized and enter your information in bookkeeping software like QuickBooks or Peachtree?
Whatever your preferred method of filing your information is, you have to assemble it for the tax preparer or accountant. What do you have to give him? Here is a list of the documentation:
1. Receipts for the purchase of equipment. These are your assets, and assets are depreciated over time. Various types of equipment have different rates of depreciation. Your accountant will know what those rates are, and he will be able to calculate your depreciation expense. Additionally, certain purchases of capital equipment will give you a tax credit. So it is worthwhile to have your accountant review this information.
2. Payroll information is important. Providing a summary of Social Security and Medicare taxes, health benefits, if any, Federal, state and city taxes for each employee and the Treasury payments made are necessary to ascertain your payroll expenses for the year. Any payments made to independent contractors should be reported on Form 1099.
3. Any draws that you have taken from the business and any estimated taxes you have paid will assist the accountant in preparing your tax liability.
4. You will need to give the accountant a list of accounts receivable that have remained outstanding at the end of 2012. He may ask you about the probability of collection of these accounts and may want to indicate whether these are probable or noncollectable leading to a bad debt expense. He may also want to know whether you have “earned” the revenue you have collected in the year. This refers to the Matching Principle in accounting – if you haven’t earned the revenues but have collected it, you will have an accrual on moneys collected but not earned.
5. In this vein, you will also need to give the accountant a list of those accounts payable that you have not paid at the end of the year. The numbers in 4 and 5 will have an impact on your Working Capital.
6. It will be necessary to also keep an eye on your inventory. How frequently do you replenish your inventory? Inventory Turnover is critical to learning whether you will need to reduce the selling price or if you will have a write-off of obsolete inventory.
7. If you have entered into any contracts with vendors or suppliers and independent contractors it would be wise to provide the accountant with a copy of those contracts so that he can see any anticipated revenues or costs associated with them.
8. Before providing you with the completed tax returns, the accountant will want to review them with you before finalization to make sure that he has included everything. Take this conference seriously. He should offer you advice on the conduct of your operation and indicate whether you need to do more to mitigate your tax liability or improve the way you are running your business.
By the way, if you are using a software package and your accountant uses the same program, you can provide him with a download of your files so that he can manipulate the information as he needs to. This will save him a lot of time in preparing your information.