Tax season is a stressful time for us all. It can be even more overwhelming if you’ve experienced a major life change or started a business, and as a result — don’t know what the tax implications will be.

If you started a business, bravo. Kudos to you. Just like anything in life, taking the first step is often the hardest. You’ll become more confident as time passes and as you gain experience. Remember, every expert was once a beginner

Now back to taxes, specifically the question of what to bring to your tax preparer. Your smile and a friendly attitude — and a lot of information, numbers, and documents.

Different business structures face different tax considerations, and there's no shortage of common business tax deductions.For the sake of this article, let’s focus mainly on sole proprietors and single-member limited liability companies (SMLLCs).

Most of the information can be extrapolated and applied to other small businesses like partnerships, limited liability companies (LLCs), and S-corporations.

Sole proprietors and SMLLCs complete Schedule C when filing their individual income tax returns. Most of the information your tax preparer needs can be found on this completed form.

Initial Documents to Bring to Your Tax Preparer

Provide your business name (this seems self-explanatory, but let’s start with the basics). You’ll want to provide your physical address as well as a mailing address or P.O. box if you have one.

Bring your articles of incorporation and operating agreement if you own a SMLLC.

You’ll also need to categorize the type of business you operate and explain the types of products and/or services you sell.

Your tax preparer will need to classify your business to meet Internal Revenue Service (IRS) standards. You can read more about business classification on page 17 of the Schedule C instructions.

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Bring Pertinent Identifying Information 

If you’re a sole proprietor, you can do business under an Employer Identification Number or Social Security Number. If you’re a SMLLC, you’ll need to provide your EIN.

If you somehow overlooked this step and now realize you need one, you can easily apply online.

You do not need to pay for an EIN, so you can skip the paid ads that say they will help you. It is simple to do.

Include Either Your Income Statement or Profit and Loss

These accounting terms can be used interchangeably. They are merely financial statements. Don’t be scared. They are fancy words for your business’s financial results. They are all the expenses and earnings related to your business. 

Some people use QuickBooks or other accounting software, while others use Excel or Google Sheets. I even have some clients who take an old school approach and write their numbers by hand and use their own accounting system.

Regardless of what you choose, it’s critical to be organized, complete, accurate, and consistent. If you need help with your bookkeeping, there are professionals out there who can help.

Save all of your receipts and source documents. You’ll need proof if the IRS asks a question or pulls your return for an audit.

This includes 1099s for any income received and invoices and receipts for your expenses. If you are comfortable with your accounting and financials, you don’t have to give your tax preparer your source documents. 

If you don’t have your financials documented, you’ll need to compile a list of your income and expenses or have a bookkeeper, accountant, or tax preparer help you.

The last thing a tax preparer wants is to be handed a bag or box of receipts during tax season. If you are in this category, may still have time to get prepared. Save yourself time and money by being organized as it relates to the documents you should bring to your tax preparer.

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If you need extra time to file your return, it’s not the end of the world. You can file an extension, but ensure you or your tax preparer fills out the paperwork, which is straightforward.

Sometimes an extension is the best choice, but it’s not ideal to procrastinate on your taxes because they are not going away. Also, keep in mind that if you owe tax, you end up paying interest (albeit a small amount) every day that you are late.

Measure Your Home Office

Do you have a home office? If so, you’ll need to provide your tax preparer with the following information: square footage of your entire home and the square footage of your home office.

If you’re a homeowner, have your mortgage interest and mortgage insurance premiums, real estate taxes, and homeowner’s insurance you paid during the prior calendar year.

If you’re a renter, you’ll need to provide the amount of rent you paid annually.

Whether you’re a homeowner or renter, you’ll need to provide documentation for repairs, maintenance, and utilities.

Asses Your Vehicle Expenses

Did you use your vehicle for your business? If you did, you can deduct your vehicle as a business expense.

You’ll need to provide the date you started using your vehicle for business, its make and model, and both the total number of miles driven and the total number of business miles you logged.

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This should be all of the information you need if you take the standard mileage rate deduction which is 57.5 cents per mile in 2020. The other option is to deduct your actual expenses. 

It’s important to note that if you used your vehicle for business, the IRS requires you to keep a mileage log. Save yourself the headache in the years to come by filing relevant receipts (and keeping them organized).

Tally Up Additional Considerable Costs

If you paid out of pocket for health insurance premiums for yourself and your family, you can deduct your monthly premiums. Be sure your preparer knows the amount of this expense.

Most small businesses don’t have a formal retirement plan. A common option to save and invest for retirement is by individuals setting up their own traditional or Roth IRA.

If you contributed to either of these, make sure you give this information to your tax preparer.

Finally, keep in mind that if this is your first year in business, you won’t have any prior year business information. If this is not your first year filing for your business, you’ll need to provide this information.

Some items from last year could affect your business tax this year — such as depreciation. Common examples might be computers, office furniture, a vehicle, or a building.

The Bottom Line

Chances are there will be some back and forth between you and your tax preparer. It’s rare that anybody ever brings their tax preparer all of what they need on the first try — that goes for experienced individuals and business owners. 

Find a tax preparer who cares about you, takes the initiative, and goes the extra mile to help you — they’ll ask questions, be patient, and help you with a long-term tax strategy. 

Your tax preparer is your advocate. They help you stay organized, thereby saving you both time and money. When in doubt, ask for help. It’s better to be thorough and ask “silly” questions than not. Best of luck this tax season.

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