With April 15 still a few weeks out, there are likely a lot of folks int he U.S. that haven’t gotten around to filing their taxes. And while that’s OK (for now), the following tax prep checklist can kickstart the filing process—because there’s no better feeling than knowing your taxes are filed on time. (OK, maybe there are a few better feelings, but you get the idea.) Note: This list is aimed at U.S.-based small business owners, freelancers, the self-employed. We’ll have a Canadian edition next. And since all tax situations are different, this shouldn’t be considered a comprehensive list. As always, talk to an accountant or tax prep pro! P&L Report For just about every business—especially those in the 1-5 employees size range—the profit and loss report is the keystone for a success tax filing. Ultimately, it will reflect the year’s inbound revenue and outbound expenses. The result? Profit! And that’s what the business is taxed on. Get the basics of a P&L. General Ledger A business’ general ledger can help a small business navigate the tax filing process as well. The general ledger “contains all the accounts for recording transactions relating to a company’s assets, liabilities, owners’ equity, revenue, and expenses.” (source) Your accountant or tax prep pro will appreciate seeing this as it will help them get a clearer understanding of your business’ financial position over the year. W-2s If you’re both the business owner and an employee of the business, it makes sense to knock out the your business and personal tax filings in one session. If your business has payroll in place, all payees—including yourself—will receive a W-2. The W-2 reports your personal income. Bonus Tip: If you worked for a company earlier in the year before starting your own thing, make sure you get a W-2 from that employer too! Quarterly Estimates Freelancers know those two words well. Over the course of the year, many self-employed people file and pay quarterly estimated taxes. They do this when the income they earn “is not subject to withholding.” Come tax time, you tally up your quarterly estimated payments and see how the look against what your final tax liability is. If you’ve overpaid, you’ll get a refund. If you’ve underpaid, you’ll have to pay the balance and perhaps an underpayment penalty. If you hit what you owe right on the nose, then you’re awesome. Learn more about Federal quarterly estimated tax payments. 1099s If you’ve hired and paid contractors, then you need to report it! When you issue a 1099 to a contractor it’s basically to signal to the government that you paid this person. They, in turn, report that income. When the numbers match up, everyone’s happy. And remember, in most cases, contract payment is an expense that helps whittle down that P&L bottom line. Bonus tip: Only contractors paid $600 or more need a 1099. Learn more about what an expense is in accounting. Ultimately, the best way to make sure that your tax filing experience is a pleasant one is to maintain good bookkeeping practices throughout the year. As previously mentioned, every tax situation is different. Thus this tax prep checklist should not be considered the be-all, end-all. Talk to you accountant to best determine exactly what you need to produce to file effectively. Happy tax season!
