If you are the sole proprietor of a new business this year, it is vital that you keep excellent records and prepare for tax time throughout the year. You should strive to file your taxes as soon as you can after the filing deadline so that you have that out of the way for the year and can use what you ended up paying in taxes to help you estimate your taxes for the next year. Here is what you are going to need to prepare in order to have your taxes done early next year. Use this information as the year wraps up to make sure you are ready when next February rolls around.
Find Someone To Do Your Taxes
The first thing that you need to do is determine who is going to do your taxes. Since this is your first year being a sole proprietor, it is a smart idea to hire someone to do your taxes for you.
You should start looking for an individual or company to do your taxes before tax times rolls around; during tax times most accountants and book keepers are very busy and will not have time to do informational interviews. Late summer and early fall when they are less busy is a good time to set up a meeting with a company or individual that you want to work with to see if they can meet your business needs. Make sure that you hire someone who has extensive experience not just with taxes, but with working with sole proprietors; you want someone who will not make any mistakes on your taxes and who will also help you get every available deduction.
Finding someone know to do your taxes will also allow you to figure out everything that they will need from you come tax time and will help you get an early appointment so you can ensure that your taxes are completed early.
Collect All Receipts & Accountant Statements
Next, you are going to want to make sure that you have all your receipts and account statements together so that it will be easier to do your taxes. As the sole proprietor of your business, you probably qualify for a wide variety of deductions. You can only take advantage of these deductions though if you have detailed records. Here are a few items you are going to want to keep track of:
Tax Payments: If you paid your estimated income taxes throughout the year, you are going to want to keep accurate and detailed records of the date you paid your estimated taxes and how much you paid.
Home Office Expense: If you work out of your home and have an area that you only use for business purpose, you may be able to deduct at-home office expenses. You can deduct qualifying expenses, such as your mortgage, internet and electric bill, up to the percentage of your home that you use for business purposes. This will require you to keep detailed records of your home's finances.
Health Insurance Premium: Since you are responsible for paying for your health insurance, you can deduct the amount you pay for your premium from your taxes. You'll need your health care statements for this.
Meals & Entertainment: If you ever take clients out for meals or entertainment for the specific purpose of business, you can deduct those expenses. You are going to need to keep track of who you took out, what business was discussed and how much money was spent. You are going to need to back this up with documentation.
Mileage Log: If you have to drive your personal vehicle at all for business, keep a log of each mile that you drive for business purposes. You'll want to log where you drove to, for what business purpose it was for, and how many total miles you drove. At the end of the year, when you add up all your miles, you'll be able to deduct a set cost per mile from your taxes.
Additionally, you'll want to keep track of all business expenses and income so that you can determine what your actual profit was that will be taxed and how much you actually made. For more information, contact a company like Broutman & Co., P.C.