Its January 2020, and it’s time to start getting things ready for your tax preparation. The biggest challenge is focusing on key elements on what you need to do so you don’t overstate or under report your business profit.
- Company Bank and Credit Cards – Correctly reconcile all bank and credit card accounts. If they don’t match up or if there’s a reconciliation discrepancy account created because they didn’t match up during the year, try to make sure it’s an insignificant amount. There is no hard and fast rule about what is acceptable, if any amount, however it’s important to see if you need to go back and re-reconcile the account(s).
- Fixed Assets – You should already have a list of your fixed assets on your Balance Sheet, showing accumulated depreciation, based on what’s on your prior years’ tax return. Verify if any of these items are still in the possession of the company, if you sold any of those items, rendered them obsolete and disposed of them, donated them, tell your tax preparer to make sure it’s properly reported. Everything you put on the tax return is expected to be in your possession at the time of reporting. If you purchased any new equipment, also inform your tax preparer of the total cost including freight, sales tax, set-up charges, and other fees associated with the purchase and installation.
- Accounts Receivable – Review your delinquent accounts receivables. If they are over 90 days old, it will be difficult to collect on them outside of potentially going to small claims court, through mediation such as the Better Business Bureau, or seeking out a lien. If you are on a cash basis for your tax filing (verify this with your tax preparer), then you cannot write them off as bad debt expense. If you are on an accrual basis you can write them off as bad debt. Part of the process for being able to write off bad debt is that you performed due diligence in contacting them, sending certified letters, etc. to try to collect the payment.
- Payroll – Review your payroll expenses from what was filed on your 941 forms and what was recorded in your financial software. If they don’t match you need to research what the discrepancy is.
- Inventory – If your company has inventory, try to make a physical inventory count and match it up against what’s in your system. Because of shrinkage throughout the year, if you don’t monitor it on a regular basis, it’s important that you don’t pay taxes on what you don’t have. Make sure you perform an adjustment into your inventory account so you have a correct balance.
Dwayne J. Briscoe