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Being a business owner is full of experiences and can be a lot of fun, but, let’s face it, as a business owner there will come a time where you and Uncle Sam will sit down to have a chat. Uncle Sam will want to know what you and your business been up to since the year started.
If you haven’t already guessed it by now, I am referring to tax time. Tax time, for many is like going to the dentist. You know you have to go, but the thought of that drill getting into your tooth is just not fun.
Similarly, sitting down with the tax man is no fun. If you’re not careful throughout the year, that visit to the tax man can be extremely painful. Fortunately, there are professionals out there, namely, accountants and bookkeepers and their job: Make sure all your stuff is done well, to minimize your tax liability.
Hopefully by now, you know what is the difference between an accountant and a bookkeeper. During tax time, accountants will be your best friend, but what exactly will your accountant need from you to file your business tax return? We’ve put together a list of 3 essential reports that he’ll need to accomplish his task.
Your bookkeeper or your online bookkeeping service, can prepare these reports for you. Your accountant will need to see your balance sheet along with your income statement. The trial balance is an important report that he’ll need as well.
What is an Income Statement?
An income statement is simply a financial report showing your company’s financial health or performance for a specific time period. The report will provide a summary of the business’s revenues and expenses. This report will also show the net profit and if applicable, the loss as well.
What is the Balance Sheet?
A balance sheet will display your company’s assets, liabilities and shareholder’s equity. Simply put, this report shows what your company owes, owns and the amount of money invested by the shareholders.
What is the trial balance report?
A trial balance includes all the ledgers that are compiled into debit and credit account columns that are equal. This report ensures that the company’s bookkeeping is mathematically correct.
So, you are starting to see how important it is to have an organized bookkeeper or a bookkeeping system that allows you to make sure that a) you don’t fall behind and b) when the time comes, you have all the necessary documents to move ahead with your taxes.
Last Year’s Tax Return
Your accountant will need to know how exactly you filed the previous year. This can be helpful to know so that he can be familiar with your business. For example, if you’re a Limited Liability Company (LLC) or a sole proprietor, your accountant will prepare what’s called a schedule C.
According to the IRS’s website, a schedule C is a report which displays either your income or the loss of profit from a business you operated or a profession you practiced as a sole proprietor.
Your accountant will see what was on that schedule C for the previous year and will use the information to file your taxes.
Bank (Credit Cards) Statements
This may seem useless, but these statements will prove to be very helpful for your accountant as they contain a lot of information about your business. Hopefully, you have a business account setup specifically for your business.
These statements and reconciliation provided by your bookkeeper will prove to be very helpful. If you have expenses for your business that are carried on your credit cards, you’ll need to provide the accountant with the credit card statements.
By reviewing the statements, your accountant will even be able to tell what expenses are deductible.
The statements will also reveal withdrawals that are made to pay you personally. This is something that your accountant will 100% need to know. Any payments made towards health insurance or investments made by you are all information your accountant will need to know.
There are other reports that your accountant will need, for example:
- Inventory: if you sell products
- Information on your vehicles or home office
- Federal or state forms.
Accountants will most likely make a checklist available to you to make sure you provide all the information needed to file your tax return. At the end of the day, keep your financial documents organized throughout the year so when it’s time have that chat with Uncle Sam, you’re good to go.