Small Business Taxes: Are You Prepared?

Well friends, today I invite you to look no further. This list isn’t all inclusive as there are a ton of documents and forms used in business for different reasons. All businesses do not have the exact same blueprint, hence the rabbit hole I found myself in. However, this a basic list that ALL businesses need to have when it’s time to file taxes.

     1. Gross Receipts. These are the income you receive from your business. Some examples are deposit information, invoices, Forms 1099, and receipt books or receipts.

     2. Purchases. These are the items you buy and resell to customers. This also includes any raw materials you use to make a product. All your documents should identify the payee, amount paid, proof of payment, the date incurred, and should show a description of the item(s). Examples of the documents you would need are canceled checks, or any document that reflects proof of payment (including electronic funds transferred), invoices, and credit card receipts and statements.

     3. Expenses. These are the costs you incur (other than purchases) to operate your business. Just like with purchased, your documentation should identify the payee, amount paid, proof of payment, the date incurred, and should show a description of the item(s) or service(s). Examples of these documents would include canceled checks, or any document that reflects proof of payment (including electronic funds transferred), invoices, and credit card receipts and statements.

     4. Travel, Transportation, Gift Expenses, and Entertainment. If you deduct any of these expenses, you MUST be able to prove certain elements of the expenses. For example:

• For travel you would need to show that it was necessary or required for you to be away from your permanent residence substantially longer than an ordinary workday AND you need to sleep or rest to meet the demands of your work while away from your permanent residence. For instance, your plane, bus, or train ticket would be deductible as long as you didn’t use a frequent traveler program to purchase the tickets. By car, you can deduct the cost between your home and the business destination.
• For transportation by car, you can deduct the cost of operating and maintaining your car during the entire trip. This would include deducting the standard mileage rate and business-related tolls and parking. If you rent a car, you can ONLY deduct the business-related portion of the expense.
• For lodging and meals, you can deduct hotel costs and non-entertainment-related meals either if your trip is overnight or if it’s long enough for you to need to stop and rest or sleep to properly perform your duties.
• Other related expenses are taxi, bus, and airport limousine fairs between the hotel and work location; and between the hotel and or work location of your customer/client, meeting place, or your temporary work location. You can deduct dry cleaning and laundry services, tips for expenses listed above, business calls, fax machine usage, or other communication devices. Computer rental fees and transportation to and from business meals.

There are monetary limits to these expenses. To learn more about those in detail view IRS Publication 463.

     5. Assets. These are the property that you own and use in your business. For example, machinery and furniture. Some assets will depreciate or lose value over time and other will appreciate or gain value. You will need to compute the value of your assets prior to filing taxes. Don’t worry, you can use this calculator to figure out depreciation and this calculator for appreciation. Document examples in this category would include purchase and sales invoices, real estate closing statements, canceled checks, or other documents that identify the payee, amount, and proof of payment or electronic funds transferred.

     6. Employment Taxes. These are the taxes that your business deducted from an employee’s check to cover income taxes – federal, state, and local – as well as Social Security and Medicare (FICA) taxes. If you are calculating employment taxes in-house, you can use the tables provided by the IRS in Circular E.

A simple spreadsheet or Word document of what you make and what you spend from day to day in your business. Examples of income and expenses would include profit from the sale of a product or service, office supplies/purchases, payroll, etc.