What to Give an Accountant for Small Business Taxes

Providing comprehensive and organized information to an accountant is a foundational step when preparing for small business taxes. This approach allows the accountant to accurately and efficiently prepare your tax filings. Gathering all relevant records before your appointment helps your accountant understand your business’s financial activities, minimizing potential errors and ensuring all applicable deductions and credits are considered. This preparation ultimately contributes to a correct and timely submission of your tax returns.

Core Financial Records and Statements

Accountants require a complete overview of your business’s financial activity, beginning with all business bank and credit card statements for the entire tax year. These statements serve as primary verification for income deposits and expense withdrawals, allowing the accountant to reconcile transactions against your internal records. They help identify and categorize every financial movement, ensuring no income is missed and all legitimate business expenses are captured.

A profit and loss (P&L) statement, also known as an income statement, provides a summary of your business’s revenues, costs, and expenses over a specific period. This document illustrates your business’s profitability, detailing income sources and how expenses were incurred. An accountant uses the P&L to understand your business’s operational performance and calculate taxable income.

If your business maintains one, a balance sheet presents a snapshot of your business’s financial position at the end of the tax year. It outlines your assets, liabilities, and owner’s equity, providing a comprehensive view of what your business owns, owes, and the owner’s investment. This statement is useful for assessing the overall financial health and structure of the business.

Exports from your accounting software, such as a general ledger, contain every financial transaction recorded for the year. This detailed record allows your accountant to drill down into specific accounts, verify classifications, and ensure accuracy across all financial reporting. Accounting software aids in organizing and categorizing transactions, making the data readily accessible and auditable.

Organized summaries of sales and expenses, even if not generated directly from software, are also helpful. These summaries provide a high-level overview of your business’s revenue streams and where money was spent. The IRS generally requires businesses to keep records for at least three years. Maintaining meticulous records supports any deductions claimed and can be crucial if your return is selected for review.

Payroll and Independent Contractor Documentation

Information related to payments made to employees is a distinct category for tax purposes. Provide all W-2 forms issued to your employees for the tax year. These documents report wages paid and taxes withheld, verifying wage expenses and ensuring proper payroll tax reporting. The W-2s also confirm the employee’s share of Social Security, Medicare, and income tax withheld.

For independent contractors who received payments of $600 or more, provide all issued 1099-NEC forms. The 1099-NEC, or Nonemployee Compensation, reports payments for services performed by non-employees. This documentation ensures the business accurately reports non-employee compensation expenses and helps the IRS track income.

Comprehensive payroll summaries or reports from your payroll provider are also necessary. These reports detail gross wages, deductions, employer-paid taxes, and employee withholdings for the entire year. They provide a consolidated view of all payroll activity, which is important for verifying payroll expenses and reconciling tax liabilities.

Copies of federal payroll tax filings, specifically IRS Forms 941 and 940, are required. Form 941 reports income taxes, Social Security tax, and Medicare tax withheld from employee wages, as well as the employer’s share. Form 940 reports the annual Federal Unemployment (FUTA) tax liability. Providing these forms confirms the business has met its federal payroll tax obligations and helps the accountant verify related deductions.

Business Asset and Liability Details

Information regarding business assets and liabilities is important for accurate tax reporting, especially concerning depreciation and debt. For any new business assets purchased during the year, such as equipment, vehicles, or real estate, provide all purchase invoices or closing statements. These documents establish the asset’s cost basis, which is necessary for calculating depreciation deductions.

If your business sold or disposed of any existing business assets, include all relevant sale documents. These documents are needed to calculate any capital gains or losses realized from the disposition. The original cost basis, accumulated depreciation, and sale price determine the taxable gain or deductible loss. Proper reporting of asset sales ensures accurate income calculation and compliance with IRS guidelines for asset disposal.

All business loan agreements should be provided to your accountant. These agreements outline the terms and conditions of the loan, including the principal amount, interest rate, and repayment schedule. This information helps the accountant understand the business’s debt structure and verify interest expenses. The loan agreement ensures that all interest payments are correctly identified and deducted.

Year-end statements for all business loans or lines of credit are also necessary. These statements summarize the total interest paid during the tax year, which is generally a deductible business expense. They also show the outstanding principal balance, which impacts the business’s balance sheet. These statements provide concrete figures for interest expense deductions, which can reduce taxable income.

Copies of prior year depreciation schedules are necessary to maintain continuity in asset tracking. This schedule shows the historical cost of assets, prior depreciation taken, and the remaining depreciable basis. The accountant uses this to calculate current year depreciation, ensuring that assets are not over-depreciated or under-depreciated over their useful lives. This ensures consistency in tax reporting from one year to the next.

Entity-Specific and Prior Year Information

Providing foundational and historical documents specific to your business’s structure offers context for tax preparation. Your business formation documents, such as Articles of Incorporation for a corporation or Articles of Organization for a limited liability company (LLC), are fundamental. These documents define the legal structure of your business, which dictates how income and expenses are reported to the IRS. A partnership agreement would similarly define how a partnership’s income and deductions are allocated among partners.

The Employer Identification Number (EIN) confirmation letter is a document that verifies your business’s unique nine-digit tax identification number issued by the IRS. This number is used for tax purposes, similar to a Social Security number for individuals. The EIN confirmation letter ensures your accountant has the correct identifying number for all federal tax filings. It is a fundamental piece of information for any business with employees or operating as a corporation or partnership.

Copies of your federal and state tax returns from the prior year are always required. These prior returns provide a historical baseline for your business’s financial performance and tax positions. They allow the accountant to identify any carryforwards, such as net operating losses or capital losses, that can be applied to the current year’s taxes. These documents ensure continuity and help in understanding year-over-year changes in your tax situation.

Any tax notices or correspondence received from the IRS or state tax authorities during the year should also be shared. These documents might include notices about underpayment penalties, changes to your tax account, or requests for additional information. Providing these notices ensures your accountant is aware of any ongoing tax issues or inquiries that need to be addressed. Promptly addressing such correspondence can prevent further issues or penalties.

For businesses claiming a home office deduction, specific details are necessary to substantiate the claim. You should provide the total square footage of your home and the dedicated square footage of your home office space. This information is used to calculate the percentage of home expenses attributable to business use. Relevant home expenses, such as utility bills, rent or mortgage interest statements, real estate taxes, and home insurance premiums, are also needed. These details allow the accountant to accurately calculate the allowable home office deduction, which can reduce your taxable income.