What are the Most Important Questions to Ask Your Accountant for Tax Season?
Working with an accountant should be a year-round pursuit, not just before tax-reporting season. While filing taxes is important, almost all of your company’s financial transactions occur in all the other months. Knowing when to ask questions is just as important as what questions to ask your accountant. How you report income and expenses is not “black and white”, the IRS allows business-owners flexibility in how to report certain financial information.
Tax season can be a stressful event, especially for all you small business owners. As a small business owner you do it all, but you don’t have to be alone when it comes to your finances.
It’s important to hire the right accountant who can assist you in tracking, analyzing, and keeping your account records secure. We’ve set-up some FAQs that you can ask your accountant, before, during, and after tax season.
1. What Information do I need to Keep?
So, you’re nearing tax season and you want to know what information you need to prepare? To keep it short and simple, you need to keep track of all your business records, for tax purposes, measure profitability, and secure outside funds. Staying organized is absolutely key throughout the year so your tax season can go as seamlessly as possible.
Organize your receipts and financial statements and stay up to date with your bookkeeping. While it won’t necessarily reduce your tax bill, it will cut down on the amount of time you’ll have to spend going back and forth with your accountant and save you money that way!
Some records might include:
- revenue
- operating expenses
- tax remittances
- employee wages
- the purchase and sale of assets
2. What Business Expenses can I Deduct?
Good news, as a business owner you can deduct business expenses on your tax return. This is valuable information because business deductions help decrease your taxable income, which in other words means you won’t have to shell out as much money come time to pay your taxes.
Here are a few business expenses that you can deduct. While these are the most common, this is not an exhaustive list, and you should consult your accountant about other potential expenses that are deductible.:
Home office deduction
Is taking a home office deduction an audit red flag? Who knows, the IRS has not said it is. “The IRS has created a simplified home office deduction in recognition of the widespread use of home offices and the desire by home-based business owners for an easy way to figure the write-off, reported American Express.”
Internet and Cellphone
You can use this as a business deduction, but be aware that if you use these two things for both business and personal use, only a portion of this can be deducted.
Travel Expenses
Does your business constantly have you on the road? Well there’s a deduction for that too. Some things that can be deductible that are a part of your trip are transportation, lodging, and meals.
Vehicle Expenses
Spend a lot of time in the car traveling to clients, to trade shows, or to any other business-related events? You’ll be able to take a deduction with the standard mileage rate or your actual expenses. Your accountant can help you choose which one is best.
3. What else can I do to Reduce my Tax Bill?
This is where selecting the right accountant comes into play.
With your financial advisor you can and should ask as many questions as you want! By coming prepared with questions, it shows your accountant that you want to be an active participant, and will help make sure your business stays on top of new tax laws and tax credits. With the proper support, you will be able to avoid any unwanted IRS audits due to compliance issues while still reducing the amount you owe every year.
4. What Changes can I make for the Upcoming Year?
Looks like you’re well on your way to success. With a good accountant you can strategically plan for a healthy business for years to come.
Here are some ways you can do that:
Financial planning
Do you know where your business is headed? Your financial advisor should help you put together a forecasted timeline for your business. Ask your CPA how you can better manage your budget to help you make informed decisions about where you are spending your money and how you can continue to make investments in your company.
Cash Flow Analysis
Don’t be so nervous to check your bank account. Improve the health of your business by keeping up with your accountant.
As your financial advisor, they can give business advice on setting a day-to-day budget to lower your cashflows, help you reduce your receivables and payables, while also maximizing your pricing strategy. Understanding your cash burn is the foundation to your business. Without a deep understanding of how you’re depleting your cashflow you can be setting yourself up for disaster.
Get Advice on Estimated Tax Payments
Are you sending too much money, too little, or just the right amount of money to the IRS?
Send the IRS too much money and you’ll be paying them an interest-free loan for the year! Send them too little and there are penalties. Work with your financial advisor to understand the key methods to achieve your specific milestones. Check your current income and your projected income and send the right amount of money to the IRS each quarter to avoid those unwanted penalties and make sure you’re maximizing the amount you keep in the bank
5. Independent Contractors or True Employees?
Do you have a combination of contractors and/or true employees? It can get tricky distinguishing what the difference is but this is why it is important to sit down with your CPA advisor to get all the facts.
For example, as a business owner you owe a huge amount of your responsibility to your true employees, such as paying employment taxes.
6. Can you Help me Grow my Business?
Well, that’s always the goal, right? Many small business owners fail to seek advice from their financial advisor. An accountant can do more than just help you review your financial records. They can offer you advice on a long-term business strategy.
Sometimes, extra capital or business funding might be the answer to your growth problems, and that’s where we come in!
7. Do I Need to Keep Every Business Receipt?
Nope!
That torn or crumpled up piece of paper can be tossed away. Something as simple as a bank or credit card statement is all you need as documentation when filing your taxes with your accountant.
But always remember that it is still important to keep accurate bookkeeping as a way to back up the entries you make. Make sure to ask your CPA how they would like you to keep track of your expenses to ensure a smooth handoff come tax season.
8. Do I Qualify for the Qualified Business Income Deduction?
The Tax Cuts and Jobs Act (TCJA) brought a host of changes for business owners both good and bad. One of the biggest, and best, changes was the qualified business income deduction (QBI). This allows some businesses to deduct up to 20% if their business income from their taxes!
There are caveats and rules to the QBI which your tax accountant can discuss with you, but this is definitely on question you’ll want to ask.
Asking Your Accountant: A Summary
We all dread tax season, but since it’s unavoidable, it’s best to attack it head on and work in concert with your accountant to craft and execute a strategy that minimizes your tax liabilities while propelling your business for future growth and success.
Just like going to the dentist, you have to see your accountant no matter what. This is an opportunity you should take advantage of, that should not be taken lightly, and most definitely should not be rushed through or avoided. And if you ever are in any doubt about a tax rule or something you’ve read in the news, just ask them! That’s what your accountant is there for.
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