Ready for Tax Season? Here’s What Your Tax Accountant Needs
Table of Contents
Key Takeaways
8 Key Documents Your Accountant Requires
Financial Statements
Tax Forms and Documents
Receipts and Invoices
Bank and Credit Card Statements
Business Deductions Documentation
Payroll Records
Loans and Investments
Other Relevant Information
Frequently Asked Questions
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Key Takeaways
✔ Accurate financial statements provide a clear overview for tax filings.
✔ Tax forms like 1099s and W-2s ensure compliance and proper deductions.
✔ Receipts and invoices support expense tracking and deductible reporting.
✔ Bank and credit card statements verify income and expenses for accurate filing.
✔ Business deductions documentation maximizes potential tax savings.
✔ Payroll records ensure correct tax calculations and filings.
✔ Loan and investment documents help claim deductions and report gains.
✔ Relevant information, such as corporation documents, ensures accurate tax filing.
As tax season approaches, many small businesses and gig workers in New York City face stress and confusion when it comes to filing taxes. In fact, recent research shows that 37% of small business owners and gig workers experience anxiety about the process. To make things easier, ensuring the tax accountant has all the necessary documentation is key.
Here’s a guide to the essential documents an accountant will need to help streamline the filing and reduce stress this tax season.
8 Key Documents Your Accountant Requires
1. Financial Statements
When preparing for tax season, businesses must provide their tax accountant with accurate and comprehensive financial documentation. These essential financial documents help the tax accountant assess the business’s overall financial health, identify potential deductions, and ensure compliance with tax regulations.
Income Statements
An income statement is a document that provides a detailed summary of a business’s revenue and expenses over a specific period, typically a year. This statement helps a tax accountant determine the business's profitability and is essential for calculating net income, which directly impacts tax obligations.
Key components of an income statement include:
Revenue/Sales: A detailed breakdown of all sources of income, including sales of goods and services. The tax accountant will use this information to verify total earnings for tax calculations.
Cost of Goods Sold (COGS): Includes all expenses related to producing or delivering the product or service. This deduction reduces taxable income.
Operating Expenses: Includes rent, utilities, salaries, and other recurring expenses necessary for the business. Accurate records of these expenses are crucial for identifying tax-deductible costs.
Net Profit or Loss: The final figure that reflects the business's profitability after subtracting expenses from revenue. This is crucial for tax filing, as it directly influences the business's tax liability.
Balance Sheets
A balance sheet offers a snapshot of a business’s financial position at a given point in time, typically at the end of the fiscal year. It provides an overview of the business’s assets, liabilities, and equity, which are necessary for a tax accountant to determine the financial stability of the company.
Key components of a balance sheet include:
Assets: Lists everything the business owns, including cash, accounts receivable, inventory, and property. These are important for calculating depreciation and other tax-related factors.
Liabilities: Includes any outstanding debts, such as loans, credit lines, and accounts payable. The tax accountant will use this to identify potential deductions related to interest payments.
Owner's Equity: Represents the owner's stake in the business, calculated as assets minus liabilities. This helps the tax accountant understand the financial strength and ownership structure of the business.
Cash Flow Statements
A cash flow statement tracks the movement of cash in and out of the business. It is essential for understanding the business’s liquidity and ensuring that there is enough cash to meet obligations.
Key components of a cash flow statement include:
Operating Activities: Cash inflows and outflows from the business’s primary operations, such as payments from customers and expenses like rent and utilities. This is important for the tax accountant to confirm if reported income aligns with actual cash flow.
Investing Activities: Cash spent on buying or selling assets, such as property, equipment, or investments. These transactions may have tax implications, such as depreciation deductions or capital gains taxes.
Financing Activities: Cash flows related to borrowing or repaying loans and issuing or buying back stock. This helps the tax accountant assess how the business is financing its operations and any tax implications from loan interest or dividends.
2. Tax Forms and Documents
Tax season can be a complex time for businesses, and one of the most crucial steps is ensuring all the required tax forms and documents are in order. A tax accountant relies on these materials to ensure accurate and compliant filings.
1099 Forms
Businesses working with independent contractors or freelancers must collect and provide 1099 forms. These forms report income paid to non-employees and are essential for accurate tax reporting.
Income Reporting: Tax accountants use 1099 forms to track payments to contractors for services rendered.
Avoid Penalties: Ensures the business adheres to IRS requirements for reporting non-employee compensation. Properly completed 1099 forms help prevent penalties for underreporting or misclassification.
W-2 Forms (For Employees)
If the business has employees, W-2 forms are a critical component of tax preparation. These forms detail the wages, tips, and other compensation paid to employees throughout the year.
Verification for Tax Accountant: Helps the tax accountant reconcile payroll with the business’s financial records.
Social Security and Medicare Compliance: Ensures proper reporting and contributions for employee benefits.
Form 941 (Employer’s Quarterly Federal Tax Return)
Form 941 is a key document for businesses with employees. It reports payroll taxes, including federal income tax, Social Security, and Medicare withholdings.
Quarterly Payroll Overview: Details the total payroll taxes withheld and paid each quarter.
Audit Trail: Serves as a record in case the IRS questions payroll taxes or withholdings.
3. Receipts and Invoices
When preparing for tax season, a tax accountant will need to review receipts and invoices to ensure that business expenses are properly documented and income is accurately reported.
Receipts for Expenses
To ensure that all potential deductions are captured, a business must have proper documentation for each expense. Receipts provide evidence of costs incurred and can help minimize the overall tax burden.
Supplies: Receipts for office supplies, raw materials, and other business-related purchases.
Utilities: Bills for electricity, water, internet, and phone services that are used for business purposes.
Travel Expenses: Receipts for transportation, lodging, meals, and other travel-related costs when conducting business outside the usual location.
Software and Subscriptions: Documentation for any software tools or subscriptions purchased for business use, including accounting software, design tools, or CRM systems.
Invoices
Invoices serve as proof of income and are especially important for businesses that deal with cash or non-standard payment methods. These documents ensure that the income generated is accurately tracked and reported to the tax authorities.
Client Invoices: Detailed statements issued to clients showing the services rendered or products provided. This helps establish income and the amount the business is owed.
Cash Payments: If a business deals with cash transactions, proper invoices or receipts are crucial for proving the income.
Refunds and Adjustments: Any invoices or records of refunds or adjustments made to previous sales. These should be carefully documented to avoid discrepancies in income reporting.
4. Bank and Credit Card Statements
Bank and credit card statements are crucial for verifying both business income and expenses. A tax accountant relies on these documents to cross-check the business’s financial activities and ensure that the records are consistent with income and expense reports.
Complete Bank Statements
Complete, year-end bank statements help a tax accountant track every transaction made throughout the year. These statements provide an overview of the business's financial health and assist with identifying potential discrepancies or unaccounted-for income.
Business Account Statements: Statements from all business bank accounts. They are needed to confirm deposits, payments, and any other transactions related to business operations.
Check Payments: Records of checks issued or received during the year. These help identify expenses or income that may not be captured elsewhere.
Credit Card Statements
Credit card statements are just as important as bank statements when verifying expenses. A tax accountant will need these records to ensure that all business-related credit card purchases are properly documented for deductions.
Business Credit Cards: Statements for any credit cards used exclusively for business purposes. These documents allow for a clear distinction between personal and business expenses.
Credit Card Purchases: A detailed breakdown of credit card transactions made for business purchases, such as office supplies, travel, and other operational costs.
Interest and Fees: Any interest paid or fees charged on business credit cards that are directly tied to business expenses, which may be deductible.
5. Business Deductions Documentation
As tax season approaches, it's essential for businesses to provide thorough documentation for their tax accountant. Proper records ensure that eligible deductions are not missed, which can significantly reduce the tax burden..
Vehicle Use
For businesses that use vehicles for work-related purposes, the tax accountant will need detailed records of business-related mileage. The IRS allows businesses to deduct mileage costs associated with driving for business tasks, such as client meetings, deliveries, or site visits.
Mileage Log: This should include the date, starting and ending locations, purpose of the trip, and total miles driven.
Fuel and Maintenance Receipts: Receipts for gas, repairs, maintenance, and other vehicle-related expenses can be deducted in addition to mileage, depending on the method of calculation chosen.
Leasing or Loan Documents: If the business leases or finances a vehicle, the tax accountant will need the documentation to calculate depreciation or lease deductions.
Home Office
If a business owner or employee uses part of their home for business purposes, it is possible to claim home office deductions. The tax accountant will require specific information to verify the eligibility and amount of the deduction.
Home Office Measurement: The square footage of the office space versus the total square footage of the home. This is used to calculate the percentage of home expenses that can be deducted.
Utility Bills: Include electricity, water, and internet bills, as these can be partially deducted based on the percentage of the home used for business purposes.
Rental or Mortgage Documents: Provide documents showing the rent paid or mortgage interest for the property. The tax accountant will need this to determine how much of the expense can be attributed to the business use of the home.
Depreciation Records
Depreciation allows businesses to deduct the cost of assets like equipment, furniture, and property over time. This is a critical area for businesses, as it helps reduce taxable income by spreading out the deduction across several years.
Asset Purchase Receipts: Provide receipts for any business assets purchased, such as computers, machinery, office furniture, or buildings.
Depreciation Schedules: A tax accountant will need a record of how each asset depreciates over time, including the purchase date and the expected lifespan of the asset.
Maintenance and Repair Invoices: Any costs associated with maintaining or repairing depreciating assets should be documented, as these can sometimes be deducted in addition to depreciation.
6. Payroll Records
Accurate payroll records are crucial for businesses to ensure proper reporting of employee-related deductions. With 25% of small businesses facing fines for payroll tax mistakes, it’s vital to maintain precise records. Tax accountants rely on these details to calculate the correct tax liabilities and ensure that all eligible benefits are included in the filings.
Payroll Summary
A comprehensive payroll summary provides a breakdown of employee wages, bonuses, and taxes withheld throughout the year.
Employee Salary and Wage Information: Document the gross wages paid to each employee, including hourly rates and any overtime, as well as any bonuses, commissions, or other forms of compensation.
Withheld Taxes: Keep records of federal, state, and local taxes withheld from employee wages, including Social Security, Medicare, and any other deductions.
Employer Contributions: Document any employer-paid taxes or contributions, such as the employer portion of Social Security, Medicare, and unemployment taxes.
Benefits Information
Employees may receive various benefits that are tax-deductible for the business.
Health Benefits: Provide records of any health insurance premiums paid by the business for employees. This may include medical, dental, and vision plans.
Retirement Contributions: Document any employer contributions to retirement plans, such as 401(k)s or pension plans.
Other Employee Benefits: Keep records of other benefits provided to employees, such as paid time off (PTO), life insurance, and any other fringe benefits.
7. Loans and Investments
When preparing for tax season, understanding how business loans and investments affect taxes is crucial. Tax accountants rely on detailed records to ensure proper reporting, potential deductions, and correct application of tax laws.
Loan Documents
Business loans can have significant tax implications, especially when it comes to interest deductions. A tax accountant will need detailed records to determine any deductions a business is eligible for.
Business Loan Agreements: These documents detail the terms of the loan, including the interest rate, repayment schedule, and any collateral tied to the loan.
Loan Payments: Accurate records of loan payments, including principal and interest portions, are essential. The interest paid on loans is typically deductible, but the principal repayment is not.
Interest Paid on Loans: The amount of interest paid throughout the year can be deducted as a business expense. A tax accountant will need a clear breakdown to calculate the correct deduction.
Investment Statements
Investments made by the business can also affect taxes, particularly when there are gains or losses to report. Tax accountants will need a comprehensive view of any investments to ensure the business's tax filings are correct.
Investment Portfolio Summaries: These documents show any stocks, bonds, or mutual funds the business holds. They help the tax accountant assess capital gains or losses, which could impact the business’s tax liability.
Dividends and Interest Income: Any income generated from investments, whether through dividends or interest, should be tracked. This helps a tax accountant determine how these earnings will be taxed.
Capital Gains/Losses Statements: If a business has sold investments throughout the year, it’s important to have documentation that reflects any capital gains or losses.
8. Other Relevant Information
In addition to the core financial documents, a tax accountant will need other supporting paperwork to complete the tax filing process. These documents help ensure that all aspects of the business’s structure and potential credits are accurately accounted for.
Corporation Documents
Tax accountants need specific legal documents to verify the business structure, which can influence tax rates and deductions.
Articles of Incorporation: These are the founding documents for a corporation and confirm its legal status. The tax accountant uses these documents to determine the appropriate tax filings, as different entities (LLC, S-Corp, C-Corp) have different tax requirements.
Bylaws: This outlines the internal governance of the corporation. While not directly impacting taxes, it helps a tax accountant understand how the business operates and whether there are any special tax considerations based on its structure.
Changes in Business Structure: Any changes made to the business structure, such as converting from an LLC to a corporation, should be documented.
Tax Credits
Business tax credits can significantly reduce the overall tax liability. Tax accountants can help identify and apply for available credits, but they’ll need specific documentation to do so.
Research & Development (R&D) Credits: If a business is involved in research and development, there may be tax credits available for these activities.
Energy-Efficient Initiatives: Businesses that invest in energy-efficient equipment or projects may qualify for tax credits. Documentation of these investments, such as invoices for new equipment or projects related to sustainability, is necessary for claiming these credits.
State-Specific Tax Credits: Many states offer tax credits for businesses engaged in specific activities (such as hiring employees in certain areas or creating jobs). A tax accountant should be informed of these credits, and they will need state-specific documentation to apply for them.
Frequently Asked Questions
What happens if I file my taxes late?
If you file late without an extension, you may face penalties and interest on any taxes owed. The Failure to File Penalty is typically 5% of unpaid taxes per month, up to 25% of the unpaid amount. If you owe taxes but file more than 60 days late, the minimum penalty is $435 or 100% of the tax due, whichever is smaller. If you expect a refund, there’s no penalty for late filing, but you must claim it within three years.
What’s the difference between a tax deduction and a tax credit?
A tax deduction reduces your taxable income, which can lower the amount of tax you owe. Common deductions include student loan interest, medical expenses, and contributions to retirement accounts. A tax credit, on the other hand, directly reduces the tax you owe, dollar for dollar. Credits like the Child Tax Credit or American Opportunity Credit can have a greater impact than deductions. Some credits are refundable, meaning they can result in a refund even if your tax liability is zero.
Can I file my taxes for free?
Yes, many options are available to file taxes for free, especially if your income is below a certain threshold. The IRS Free File program allows taxpayers earning less than $73,000 annually to use guided software. If your income exceeds this limit, free fillable forms are available for manual filing. Some tax preparation services, like TurboTax or H&R Block, offer free versions for simple tax situations. Many community programs, like Volunteer Income Tax Assistance (VITA), also provide free filing help.
Get Expert Tax Support with Saranac Tax Services!
Navigating tax season can be stressful, but with Saranac Tax Services by your side, you can feel confident in your tax filings. Whether you're a small business owner or managing corporate finances in New York City, our experienced tax professionals are here to streamline the process. We specialize in helping businesses like yours maximize deductions and minimize liabilities.
Let Saranac Tax Services handle your taxes so you can focus on growing your business in New York City. Contact us today and see how we can assist you!
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