Prior to meeting with my accountant each year, I gather tax documents that he will need for my business tax returns. I believe that having tax documents well organized makes this meeting go more smoothly, results in quicker turn around on my tax returns, and helps to avoid multiple trips to my accountant's office to drop off additional or missing information. Here are the top five tax documents my tax preparer needs before preparing my business taxes.
1. Income-Related Documents
Income-related documents include W-2s and 1099s, but also documents issued by banks, brokerage firms, insurance companies and others that quantify income the business received during the year. Since this information generally also is reported to the Internal Revenue Service (IRS), it is important not to overlook any of these documents or there may be a discrepancy between what is reported on my tax return and what is in the IRS's records.
2. Detailed Expense Documentation
My business uses accounting software to track income and expenses, so I generally can provide this information to my accountant in electronic form, which he can use to access and print the data that he needs.
3. Expense Receipts and Reports
I don't give my accountant a receipt or credit card statement for every business expense taken in the prior year, but I do maintain detailed records to backup all expenses so that I can provide him with any supplemental documentation he needs to prepare my tax returns. Since my business deducts mileage expense for use of my personal car for business purposes, in addition to keeping receipts and credit card statements, I also prepare a mileage table and keep it updated throughout the year. This table includes detailed information to support my business's mileage deductions, including when, where and for what business purpose my car was used.
4. Tax Payment Documentation
My business makes tax payments throughout the year and deducts taxes from my salary. Therefore, I provide my accountant with documents identifying and quantifying tax payments made by my business in all categories, including payroll taxes, income taxes, unemployment taxes, and, in my locality, a number of specific local taxes on businesses and on business income.
5. Retirement Plan Documentation
My small business has a company-sponsored retirement plan to which both I and the business contribute, so I make sure to give my accountant documentation supporting these contributions. This is important, since they generally are tax-deductible to the individual or the business.
By the time I get through gathering all the documents that I need to provide to my tax preparer, I sometimes feel that I am drowning in paper. A strategy that I use to make sure I don't overlook any tax document is to start by making a list of all documentation I will need. I do this before tax season begins, then, as each document comes in or is completed, I check it off and put a copy of it in a year-end tax document file for my accountant. This process not only means that I will have everything I need at hand when I meet with my accountant, but allows me to identify well ahead of time if any documents have not been received and to take steps to obtain them.