[We interviewed our tax accounting expert – Lisa Capparelli, a Partner with a Public Accounting Firm and the Director at Graphite Financial -who helped us put together a checklist and some FAQs on how to best prepare for your upcoming tax filing.]
Before you get started, one rule of thumb is to not assume any thing from last year, starting each year with a fresh pair of eyes.
In order to make the tax filing process as seamless as possible, it’s helpful to prepare the following materials in advance for your accountant:
If possible, it’s helpful to review your financials with your tax accountants on a quarterly basis so they can have a jump start on any significant changes.
Providing detail for key reconciliations
Confirm that key figures on your balance sheet match your statements, including the bank and credit card balance. If you have an accounts receivable or payable balance, make sure you can provide the transaction-level detail related to each of those accounts.
Recording depreciation and amortization
Many companies failed to record amortization according to GAAP. Double check with your CPA to review your depreciation and amortization calculations.
Consistent retained earnings roll forward
When a company files for the tax return, all the information in the tax returns should be finalized, especially the retained earnings balance. One of the key mistakes companies make is their beginning balance of retained earnings does not equal the prior year’s ending balance.
If there is a difference, it’s worth reviewing the differences with your CPA. There are times when you may need to make a retained earning adjustment. The tax accountant will review with you on what changes were made and why, and if it is significant enough, a tax amendment might be needed.
If you feel that your financials are not complete or that your materials will not be ready by March 15th, communicate that as soon as possible with your tax accountant so they can prepare to file the extension.
There is no penalty to file for an extension. It’s important to note that this extension is an extension of time, not an extension to pay.If you think you will owe tax on the state level, you will still have to pay the owed amount as of April 15. Otherwise, the IRS or the state will consider your extension invalid without a payment.
If possible, a physical inventory count should be done as of the end of the year. It’s helpful in providing detailed backup for your inventory roll forward, which should include the beginning balance of inventory, inventory additions and purchases, cost of goods sold shipments and adjustments for obsolescence or shrinkage.
You want to make sure that your tax accountant is a registered CPA. It’s also helpful to understand how many tax returns they’ve filed in the past so you know you have someone that can draw on a depth and breadth of experience. Beyond technical skills and accreditation, It’s important that they’re a strong communicator and respond quickly to your questions and needs.
Lisa Cappotelli is an experienced CPA with 25+ years of experience in business management, general accounting, financial analysis, process improvement, and account reconciliation. She is a Partner with a Public Accounting Firm and as well as a Director at Graphite Financial.
Disclaimer: The information provided in this article is intended as general guidance only and is not intended to be nor should it be considered legal or financial advice. You should consult with your CPA to review your business' specific accounting issues and challenges.