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Tax prep

Best Practices for Tax Preparation

Accurate tax reporting is a key component to the health and well-being of any company. While the accountants and bookkeepers in your company may not actually process your company tax returns, they still have an essential job in the tax preparation process. The importance of tax prep is to make sure the documents are as organized as possible for handoff to the CPA (Certified Public Accountant). Ensuring that everything is correct and orderly can reduce errors and costs. When a CPA has to contact you to review outstanding issues, you will have to pay more for his or her time.

Here are some key items to keep in mind:

  • Review your balance sheet and P&L in detail. Look for oddities and discrepancies, compare the numbers to the previous year, and see if there are any major changes that need to be addressed. Make sure reconciliations are up to date and that the chart of accounts is clean (for example, there should be only 1 account for bank charges and not multiple). Ensure that meals and entertainment are separated out as well.
  • All uncategorized or miscellaneous expenses should be categorized and coded properly.
  • Secure a copy of the property tax return and 1096 (summary of all your 1099s, which are tax forms recording income received as an independent contractor, for which taxes have not been withheld), as well as year-end payroll documentation.
  • It is best to have copies of receipts for major purchases in your records, as well as receipts for fixed assets you’re going to be depreciating, and the prior year’s depreciation schedule.
  • Provide your CPA with your journal (all transactions) for the entire year.
  • It is essential to supply your primary documents (financials), secondary documents (AR/AP and any ledgers for accounts that have had activity during the year), and supporting documents (like bank statements, loan statements, and anything you’ve received from the government regarding tax payments).
  • The beginning trial balance should match the ending adjusted trial balance that your CPA provided you the previous year. If they don’t match, it can cause a problem that will carry over the entire year.
  • Send the package to the CPA with a cover sheet including bullet points of what has happened to the company throughout the year, any questions you might have, and anything you want the CPA to know about
  • Communication is key. Call your CPA and ask any questions you have to avoid errors!

Most importantly, it is good to keep all of the above in mind throughout the year, and not just during tax season. This will make your job easier when the year closes.

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