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Get the Big Picture on Planning Business Taxes
"Doing business taxes" sounds like a one-time job each year, but it's not. Business taxes are complex, and it's never too soon to start thinking about business tax time. If you are just starting your business, or don't have an accountant yet, it's time to set up a meeting to talk about tax planning before the end of the year.
As a small business owner, you may wonder what to bring with you when you talk to your accountant. This article discusses some tips for business and personal tax planning, including what you should bring to a tax planning meeting.
The first step is to select a tax preparer. This should be someone experienced with business taxes, not just personal taxes. Then set up a meeting.
How Soon in the Year Should I Meet With a Tax Planning Person?
It's great to have a discussion with your tax planning person early in the year. But, at that point, you may not know how profitable your business is going to be at the end of the year or what major purchases and expenses you will have. But if you wait until close to year-end to have the discussion, you may have lost valuable time when you could have been taking action.
For example, if you must make estimated payments, you will need to start those early in the year. You will have to make those payments based on last year's tax return.
It's best to start discussions early in the year and then meet at least quarterly for updates.
Business Tax Planning and Your Personal Tax Return
Your business tax return and your personal tax return are interrelated and can't be discussed separately. Unless you are a shareholder of a corporation, your business income will be included on your personal tax return. Your accountant will want to see how your business income and your personal income affect your tax situation in general.
You will need to bring your past year's personal tax return to your first meeting with your tax planning person so that you can discuss the effect of your business on your total tax picture.
What to Bring to a Meeting With Your Tax Professional
If you have tax information for your business for previous years, you should bring those documents. You should also bring documents and information for your current year, for a discussion of your current and upcoming tax situation.
- A profit and loss statement. The P&L statement is important because it's the basis for your business tax return, for all types of businesses. Bring a statement showing the current year to date, from January 1 through the most recent full month. Just a total is fine.
- A balance sheet. A balance sheet shows all of your business assets and liabilities and it's useful to your accountant to show any potential tax savings.
- Detailed Information about business assets. Starting with the 2016 tax year, business assets you purchase during the year can be taken as an expense, up to $2500, by meeting some simple IRS requirements. This is a big time and tax prep savings for businesses because it means the expense for these assets doesn't have to be depreciated over a longer time.
- Information about your home office. You can take a deduction for your home office space expenses, and there is a simplified deduction. Remember that you can only deduct costs for a space that you use both regularly and exclusively for business purposes.