Your Small Business Tax Preparation Checklist
Tax season is here, and if your CPA hasn’t yet requested your tax documents, it’s time to get organized. You don’t want to be scrambling at the last minute on top of juggling your business operations. Getting things together ahead of time also gives you a cushion of time to request documents you might not have presently handy.
Whether this is your first time filing taxes for your business or you’ve been doing this for years, we’ve got you covered. This checklist was designed to help you gather what you need to prepare your 2020 income tax return. You may be able to find some information (such as your business classification) in your 2019 return to save time and effort.
1. Balance Sheet, Income Statements, and Payroll Reports
You or your bookkeeper may have this information stored in your accounting software, so it may be a pretty simple item to check off your list. You will need to include an income and expenses list, bank and credit card statements, accounting documents, sales records, and depreciation schedules.
Chances are, as a business owner, you’ll be both issuing and collecting 1099s this tax season. Service-based businesses typically receive many of these from their customers (and send out many to their own vendors) as they are important income verification tools for tax preparation.
You’ll need to keep all 1099 forms for interest, dividends, retirement, miscellaneous income, unemployment compensation, nonemployee compensation, Social Security, state or local refunds, and gambling winnings. This list is by no means exhaustive, so if you receive another 1099 in the mail, make sure to also hand that over to your professional preparer.
3. Expense Receipts
Even though you may not need to submit the actual receipts with your return, you should maintain copies for your own records in case of an audit. Rule of thumb is to keep these receipts for six years from the date you file your return. If space is an issue, consider using an online document vault such as SmartVault to securely store them without the hassle of physically keeping them.
4. Interest Income Documents
If you have an account that earns interest, you may receive a 1099-INT from your bank. This will be included in your schedule B as personal interest and dividend income earned during the year.
5. Deduction Documents
This will include statements supporting deductions for mortgage interest, taxes, and charitable contributions (including any Form 1098-C).
6. Brokerage Statements
You’ll need to gather brokerage statements showing investment transactions for stocks, bonds, and any virtual currencies.
7. Home Office Deduction Information
If you are claiming the home office deduction, you will need to tally information from your utilities bills, expenses, mortgage, and homeowners insurance at the very least. Your preparer may request more information to help lower your adjusted gross income. Not sure if you qualify for the home office deduction for 2020? Read our recent article here to find out.
8. Business Vehicle Information
If you have a vehicle you use for business, you will need to keep a log of the mileage used. The deduction amount will be based on the percentage of time the vehicle was used for business versus personal use. Fuel, oil, repairs, lease payments, tolls, and insurance are also costs you can deduct, so tally this information as soon as you can.
9. Health Insurance Premiums
All Forms 1095-A, 1095-B, and/or 1095-C related to health care coverage or the Premium Tax Credit will be used to deduct premiums you pay for medical, dental, vision, and long-term care insurance premiums. If you paid more in premiums than you made for your business, excess costs may be deductible if itemized on a Schedule A.
10. Notice 144 showing the amount of Economic Impact Payment (EIP) you received
According to the IRS, “People who receive an Economic Impact Payment this year should keep Notice 1444, Your Economic Impact Payment, with their tax records. This notice provides information about the amount of their payment, how the payment was made and how to report any payment that wasn't received. For security reasons, the IRS mails this notice to each recipient's last known address within 15 days after the payment goes out. It's especially important for people to keep this notice if they think their payment amount is wrong. When they file their 2020 tax return, they can refer to Notice 1444 and claim additional credits, if they are eligible for them.”
11. 2019 Tax Return
If you are not using the same preparer for 2020 as you did for 2019, they will need a full copy of your 2019 return as well as any notices received from the IRS since your last filing. If you are using the same preparer, he or she should have your information saved on file.
12. Legal Name Change or Change of Address
If you married, divorced, or legally changed your name or business name for any other reason in 2020, you will need to provide the appropriate legal documents proving this change. You should also make sure you have updated your Social Security card to reflect any name change before filing. If you have moved, notify your preparer so you receive future IRS correspondence in a timely manner.
13. Schedule K-1 from partnerships, S corporations, Estates, and Trusts
The purpose of this document is to report each partner’s share of the earnings, losses, deductions, and credits.
14. Real Estate Transactions
Include closing statements for the purchase or sale of any business-related property.
The Sooner You Start, the Less Stressful It Will Be
Tax planning for small businesses doesn’t need to be complicated, but as your business grows, so will your needs. Most companies find that they need the skills of a professional accountant at some point in their growth, and even if you haven’t reached that point yet, it might be time to start thinking about it.
After all, your tax strategy should be all about long-term planning: both in what you do today, and how those choices will affect your company tomorrow
This blog post is intended to provide generalized information and is not a personalized tax, investment, legal, or other business and professional advice.