How to prepare for my CPA tax appointment, if I've never done bookkeeping?
So you’ve started your business- invested time and money into it that past year. May be even earned a few dollars. Well, congratulations! Welcome to Entrepreneurship! Now let’s cut to the chase.
First, let me start by saying as soon as you start earning any money in your business you will need to report to the IRS. Even if you’ve spent more than you’ve earned (which most of us do in our first year or two) our friends at Internal Revenue Service still require us to file a return. If you’re scratching your head right now, a return- is nothing more than a form telling the IRS of your business financial activities.
If all you have are a box full of receipts, bank and credit card statements, but don’t actually keep your books on any software like QuickBooks or the popular app called Freshbooks, it’s OK! But PLEASE, doing think you’re just going to deliver your shoe box full-o-receipts to your accountant and not be charged a hefty fee for your that. Oh and in case you’re wondering, yes, you CAN do your business taxes yourself, but I wouldn’t recommend it. Hire a professional; you don’t want to overlook important deductions that could benefit your business. A good CPA can not only offers their expertise on tax filing, but also can be an amazing resource when it comes to advise and making your business work for you!
Let me share with you how to prepare for your CPA appointment to reduce anxiety, headache and the big invoice at the end.
1.) Gather your receipts, bills, bank & credit card statements for the whole year.
2.) Sort the receipts into major categories like:
- Assets (Furniture, Equipment, Computer etc)
- Costs of Goods sold (Purchase of items being resold or used as a part of a product being resold)
- Marketing/Promotion (Biz cards, Logo Design, Website, Hosting, Advertising etc)
- Other expenses (Office supplies, Uniforms, Professional services etc)
Make a list of these categories and TOTAL them up. I repeat TOTAL UP THE RECEIPTS in each category. YOU do this work if you want to keep your costs down with your accountant. Also, go through your bank statements and credit cards and highlight all the business expenses and jot one of the category titles from the list above next to each highlighted charge. (This will make it easier to go through and total these up by category as well). It’s recommended that you keep a separate bank account and if necessary a line of credit for the business. But if you are using personal funds and credit to pay for business expenses go through statements to make sure you haven’t missed any purchases you might have lost a receipt for.
3.) Total up your Income (this includes all funds collected for selling products or providing services within your business).
4.) If you’ve borrowed funds or have taken loans for your business, note the balances on these as well.
Your CPA doesn’t need to see receipts (you keep those for your records in case of an audit) he will usually just require a Profit and Loss statement (otherwise referred to as an Income Statement). You can create a simple one by listing the totals of each expense category and totals of all income. And he/she will likely want to see your last bank statement of the year and the value of assets should the business own any.