Are you ready for your personal taxes? Here is a handy checklist for business owners:
- Income reconciled. The most common mistake that I see with Etsy or other online sellers is that they would like to post the income netted by fees. After all, isn’t that how much money that they made? The cash deposited into your bank account is not the same as what your income is. If you are new or think that online banking downloads are incorrectly tracking your income, take another look.
- Cost of good sold: Is your business cash or is it accrual? Are you accumulating a large amount of inventory or raw materials that you are trying to directly expense before the end of the year? Perhaps some of your cost of goods sold should actually be inventory.
- Advertising expenses: Do you only do one type of advertising? Or would it be better to break down and describe them separately? Remember that tax forms only require one category to be filled out for advertising. However, that doesn’t prevent you from breaking down the marketing or advertising efforts into separate categories. An example would be a trade show vs social marketing costs. Sounds like two different expense buckets to me!
- Payroll costs. Payroll general ledger balances should be equal to the w-2’s. It’s no secret that the IRS will compare the W-2’s, 941 & 940 to each other and also your corporate tax form. If you post the money leaving the bank account as generic payroll expenses, you are doing it wrong.
- Office expenses vs. office supplies. If you buy it at a office supply store, probably a supply. Anything else, probably an expense.
- Tax Expense: Take the time to categorize for local, state, and federal. Remember that generally you can’t deduct federal taxes on your federal tax form. Consult your tax professional if you have any questions.
- Bank Recon. Still the best way to discover whether you have missed anything or not. Online accounting programs have issues with double counting, under counting or posting transfers between financial accounts twice. Take the time to read the information.
- Read the general ledger detail at least once per year. You should do this once a month, however, if you can’t do it that often, read it before sending your information to the CPA, tax professional or IRS. It can save you many dollars in taxes, fines or responding to audits.