Closing the Year – Be Ready to File Your Taxes
The key to being compliant and correctly taking all of the deductions that you are entitled to be to have your information organized and available for consideration for input onto your tax return. The following are some recommendations for getting your records pulled together.
The first step in closing your year is to reconcile your records to the monthly statements (i.e. bank accounts, credit cards, loans, and lines of credit). Reconciling eliminates duplication and picks up all those miscellaneous entries that you might miss, such as debit card purchases, finance charges, merchant card fees, etc.
Next, review your profit and loss statement. Look for reasonableness and accuracy. Compare your gross margin to prior years – are you in the 40 – 60% range? And focus on any negative figures. These are things that your accountant will notice, so you definitely want to sort out any questions now.
Lastly, review your balance sheet. Specifically, can you support the numbers on it? You will likely learn a lot about your office procedures here and pick up some additional write-offs.
- checking accounts, credit cards, & loans – look to see that the ending balances match the amounts on your statements
- fixed assets – does the detail include all of your equipment, software, furniture, fixtures, and property improvements
- receivables and payables – if these are not to be paid, then adjust or write-off
- payroll and sales tax liabilities – do you really owe these?
- due to/from shareholders – is everything listed?
Records that you will need to collect include your prior-year tax return, W2, interest income, mortgage summary, medical expenses, health insurance premiums, school tuition/loan payments, stimulus payment stub, investment statements, rental property records, home office expenses and sole proprietor/LLC business records.
Note that all charitable deductions now require a written receipt as support.
And for all those miscellaneous debit card/credit card receipts, bank statements, utility bills, donation letters, etc., sort them by category, write notes on them (if need be), and put them into envelopes or a file. You will want this as a back-up.
The amount of time that you need to keep records ranges from three years to indefinite, depending on your history with the IRS.
2017 Tax Calendar
- January = time period for sending/receiving W2’s and 1099’s
- March 15 = deadline for corporate & partnership tax returns
- April 18 = due date for individuals returns
Focus on Professional Standards
A few years ago, the IRS created new standards for paid preparers of tax returns. The purpose of the legislation (Small Business and Work Opportunity Tax Act) was to ensure that tax returns are accurate and complete. Two important aspects of this Act that you should be aware of are:
- tax preparers now are registered with the IRS and, annually, complete 15 hours of continuing education in taxes and ethics
- our minimum standard for what is considered reasonable was increased from “a realistic possibility” to “more likely than not” that your tax treatment is correct