Tax time is almost here again! This year is a little quieter because we do not have extras like stimulus checks or Advance Child Tax Credit payments to report on returns. These caused some confusion for taxpayers who did not remember receiving them or amounts received. The result from incorrectly reporting these numbers on a tax return was an adjustment by the IRS to the taxpayer’s refund or balance due.
We still have many people investing in cryptocurrency, but because the markets have changed and people are more aware of reporting requirements, this too should be a calmer area!
We will have a few new concerns such as more frequently issued 1099-Ks, but with proper reporting, these should not be a problem. See new tax law updates here.
So back to some business basics as you get ready for your annual visit to your tax preparer:
Partnerships and S-Corporations have a March 15th deadline for filing their informational tax returns (1065 and 1120S respectively). These returns generate K-1s for partners/shareholders. A K-1 provides the financial information necessary to file personal returns which are still due on April 15th.
Sole Proprietors or Single Member Limited Liability Companies (LLCs) do not have a March 15th deadline. They DO have some work to do before the April 15th deadline when a Schedule C is included as part of a 1040 Personal Tax Return.
For starters, regardless of which return(s) a taxpayer files, they need to make sure they have accurate totals for business income and business expenses.
This comes from properly tracking income and expenses…so, HAVE you been tracking your business income and expenses. If the answer is yes, the next question is HOW? If you use an accounting system like QuickBooks you should be in good shape. Just be sure your accounts are properly reconciled with bank statements and Credit Card statements for each month of 2022. If you are unsure about how you’ve categorized your entries, please discuss with your accountant before finalizing numbers for taxes.
If you have not been tracking business income and expenses, now is the time to refer back to bank and Credit Card statements to identify both taxable income and deductible expenses. You may also have receipts you’ve kept through the year.
Set up a spreadsheet with a page for Income and a page for Expenses. Excel works great for this. Include the following information:
For income – date, who paid, amount. In some cases, it is appropriate to list what they purchased or why they paid you.
(Example: 01/05/2022, Tom Jones, $1,200, Computer Input Services)
For expenses – date, amount, payee (who you paid), what you purchased. These details help determine the correct category for your tax deduction.
(Example: 01/05/2022, $237, Office Depot, printer cartridges)
If you just aren’t sure of how to do all of this, call your accountant and let them help. They can talk you through the process, or in some cases, do it for you. Remember, you will have to pay them to provide this service.