While tax day may not be until April, when you run a business, you can't let the tax man out of your sight. As January draws to a close, you will want to start gathering and organizing receipts and other information for your accountant. Here are some tips to make the meeting easier - for both of you:
- Have last year's tax return ready. If you've used the same accountant for years, you can skip this step. But if this is your first trip to the accountant, remember to gather up your state and federal return for last year.
- Document your income from last year. From January 1 through December 31, you should have documentation for every penny you took in from clients. Entrepreneurs - and freelancers especially - need to take pains to avoid omitting anything. One tip is, as deposits come in, to enter them into a spreadsheet or tag them in your financial management software. That way, if you don't get an IRS 1099 form from the client, you can still report your income.
- Document your expenses. Make sure you've kept track of every pen, every ream of paper, and every paperclip you've purchased. If you have any questions about whether or not something is deductible, ask your accountant. She'll be able to tell you whether you can deduct your cell phone (possibly, if you use it mostly for business) or your new desk as a business expense.
- Document your mileage. The IRS requires you to "contemporaneously" document your mileage when you drive your personal vehicle for business purposes. But if you haven't, open up your calendar and review your appointments from the past year, then enter the addresses into Google maps. If this was a legitimate trip, say to visit a client or purchase office supplies, then you can deduct that mileage.
- Remember other legitimate deductions. When you're searching for deductions, don't forget business use of your home, including utilities, mortgage payments and storage space. If you use 50 square feet of your home for storing inventory or 25 square feet for a home office alcove, mention it to your accountant - and have information on how much you pay in utilities like heat, gas and water, as well as your mortgage or rent payment, so that she can calculate your deductions.
- Be organized. Your accountant does not want a shoebox of receipts. He will want this information to be easily accessible, readable and organized. Prepare a spreadsheet of income, expenses, meals and mileage for him to use when preparing your tax returns.
Remember, if you think you can deduct it, make sure you know the amount of it and its legitimate business purpose - then ask your accountant. He won't let you deduct anything questionable (like a giant flat-screen TV), but he will let you know how you can save on taxes and set you up for quarterly payments.
This coming year will be brutal in terms of taxes, but with a strong foundation - you can start keeping track of fresh mileage today! - you'll be prepared when it's time to meet with your friendly accountant. And you will want to use an accountant.