Everyone talks about how bookkeeping is a great way to prepare for taxes. That’s the first thing people think of when they think of “bookkeeping”.
Ok, true. Having sound accurate up-to-date books certainly gives you a leg up for tax time. Having a valid Profit & Loss statement gives the accountant information that will streamline their process and minimize the amount of questions they will ask you, their client.
There are other documents needed as well. Any 1099s you received, other withholding forms, reporting for state tax purposes and more will also be on that list.
The Profit & Loss Statement
If only there was an itemized list of the types of expenses you had in your business, one that just happened to coincide with the categories of expenses the IRS and state governments look at when deductions are claims for tax time to lower your taxable income.
… oh, wait, there is! It’s the Profit & Loss statement. This report takes all the income and categorizes it, then all the expenses and categorizes them into neat and usually relevant categories that the tax preparer uses to get you, the business-owner, the best case scenario at tax time.
Any merchant services used in your business should provide you with a 1099-K. This is the declaration of all the income that passed through their business and into yours. Ideally it should be close to if not exactly the same as your Profit & Loss statement income.
Geographically, in the US particularly, sales tax varies from state to state, so sales made in each state is a great report to have as well for your tax preparer, if your sales crosses state borders.
The information you need should all be provided in one neat packet shortly after year end for you to forward to your tax preparer.
Now dust off your hands and get back to work on your business!