If you’re gathering documents for the March 15 deadline, you may be doing the tax prep yourself to save money on the fees side. That’s doubly smart, because it’s also an opportunity to take advantage of all the deductions you qualify for. Be proactive as you prepare: don’t assume that your accountant will know—or have time to ask—about all facets of your operation. Bring a list of questions and documents when you meet.
Here are five key elements you should prepare for your accountant:
1. Last Year’s Return
This document is necessary if you’re hiring a new tax professional this year. If not, he or she will have a copy of last year’s on file.
2. Financial Statements
If you use any accounting software for your business, be sure to produce an Income Statement (aka, Profit & Loss) and a Balance Sheet. Those are standard reports in any program. Even if you still use Excel to track your business, you should be able to create reports that will mirror the “canned” reports in software programs.
Take the time to review these statements before you submit them. Often, bookkeeping can get behind and not all transactions may be captured or coded properly. The best way to ensure you’ve captured everything is to do your monthly bank reconciliations (a tool also included in most software programs). Just as important is to be sure all entries are coded properly.
Your Income Statement should be a picture of what you do and how much revenue is generated from that activity. It also should reflect how much it costs to do that activity and, finally, and what the company retains or loses after those costs are covered. (Hence, the name Profit & Loss.)
Your Balance Sheet should reflect all cash balances; all assets (Accounts Receivable, vehicles, computers); and also your liabilities (Accounts Payable, loans on vehicles, credit card balances, etc).
Don’t forget to capture expenses that are split between your business and home. For example, what portion of your cell phone expense is used for business
3. List of all Capital Activity
It’s important to report any changes in ownership of any item that is considered capital, rather than an expense. (Firms used to consider any purchase over $250 as an asset, but these days, $250 doesn’t go far. Many firms use $500 as the benchmark for classifying an item as an asset rather than an expense. Your assets go on the Balance Sheet; expenses are included in the Income Statement.) If you’ve added any new assets or disposed of any that were not fully depreciated, be sure to report those changes for your return. For example, let’s say you’ve donated a laptop to your daughter’s school. The computer has not yet fully depreciated, so the asset comes off the balance sheet. The remaining book value is listed as a donation on your Income Statement, and therefore deductible on your firm’s tax return.
4. Vehicle Expenses
Are you a business owner who uses your own car at work? If so, you may claim a portion of the car’s operating expenses as a deduction against your business income. There are two ways to calculate this deduction. You can track it by actual expenses [total auto expense x (business miles/total miles)] or by applying the IRS-mandated mileage reimbursement rate to those business miles. For 2017, the rate was $0.535/mile. Regardless of which method you use, be sure you can substantiate your claim by keeping a log of business miles.
5. Home Office Deductions
Business owners who use their home as the primary place of business, or regularly meet customers there, can claim home office expenses. As with the vehicle expenses, your deduction will be calculated in much the same way [total home expense x (office SQFT/total home SQFT)]. Total home expenses include rent or mortgage payments, HOA fees, insurance, repairs/maintenance and utilities (including internet).
Virginia McGann is the founder and CEO of Value Management Resources in Chicago, IL. She specializes in coaching start-up firms into growth; struggling firms to stronger footing; and high performance organizations to ever greater results.