When meeting with your CPA about your home business taxes, it's important to be prepared.
Each year, I make the trek to my accountant's office with my year's profit and loss statement, and all my documentation.?By now, I'm pretty good about bringing what's needed, since I've been using an accountant for my home business taxes for more than seven years. My first year, though, I had to make more than one trip to my accountant's office because I didn't have everything I needed.
“It saves a lot of time for both and your accountant when you are prepared,” says Greg Lemons, with Padgett Business Services. Each year that I've been better prepared, the tax prep has taken less time. This is useful, since it prevents me from wasting time (and my accountant doesn't have wasted time, either, which is important during tax season). Good preparation isn't just about saving time, though. “You have a much better chance of having a proper return done and not leaving any of the money you could be getting from your return on the table,” Lemons says.
What to Bring for Your Home Business Taxes
My CPA prepares my individual tax return as well as my business tax return. Might as well, since everything's there already. Plus, it doesn't cost that much more. If you have a sole proprietorship as a business organization, there is no separating your individual tax return from your home business tax return. Some of the items that Lemons suggests you bring to your home business taxes appointment, include:
- W-2s (if you or your spouse has a “real” job)
- 1099s
- Mortgage statements and interest forms
- Stock sale information
- Interest and dividend income
- Profit and loss statement for your business
- Accounting information (payroll, balance sheet, etc.) for your home business
- Charitable contribution receipts
- Receipts for business purchases
- Information related to taking the home office tax deduction, if applicable
- Any other documentation related to tax breaks you plan to claim
Lemons also suggests that you bring in last year's tax return as well. I don't usually need to do this, since my accountant usually has the prior year's information already, but if you are seeing a new CPA, it can make sense to bring last year's tax return for reference.
It's especially important to keep proper accounting records all year, according to Lemons. “The biggest mistake business owners make is not brining in a proper accounting of the business,” he says. “Many business owners come in with no organization of their bookkeeping, income statement, and balance sheet.”
There are some things you don't need to worry about, depending on your business organization and the number of employees that you have. In my case, I only have my VA to worry about and my son to worry about. My VA is a 1099 contractor, so I keep records of what I pay her and issue a 1099. My son is a W-2 employee, but I don't have to worry about payroll taxes because he is my minor son, so I just need to keep good records, in the form of a time card for his work.
Others, though, like home business owners organized as S-Corp with additional employees, need to keep good records and be aware of payroll requirements.
The better organized you are, and the more complete your information, the easier you will make things for your accountant — and you — as you have your home business taxes prepared.
Great post! It’s also a good idea to meet with your CPA before the year ends to do an estimate of the taxes you owe and make an estimated payment before January 15 and avoid penalties for underpayment.
Great point! It makes sense to do a year-end estimate so you have a solid idea of where you stand.