Preparing for tax season can be like preparing a holiday meal

Preparing for tax season can be like preparing a holiday meal

Written by Briana Cavanaugh

December 21, 2021

Are you ready for the end of the year?

A lot of holiday cooking happens at this time of year. Preparing a great meal requires many things: recipes and creativity, fresh ingredients, and the skill that comes from practice, practice, practice! Preparing for tax season is the same.

Small business owners often start without knowing all about bookkeeping, budgeting, and business taxes. You might think it’s impossible to sail as smoothly through your business taxes as a good cook does through meal prep – I want to reassure you that this is a learning process, and you’ll get better at it. The tax “recipes” for businesses and business owners can be as complicated as a multi-course meal at a Michelin-starred restaurant. That’s why I have a checklist to help even seasoned business owners assemble the right ingredients for tax season.

And your business is unique. You created it. Any checklist that someone else provides, even if it says “ultimate” or “comprehensive” in the title, might be missing something you need. That’s also why we’re providing the resources to empower you to create your perfect tailor-made checklist.

Are you preparing taxes by yourself or getting support?

When you cook a meal for a dozen or more friends and family, it’s helpful to have a sous chef or two who can chop the carrots, preheat the oven, and stir the sauce. But when preparing for tax season, who or what do you employ as sous chef? A pencil and calculator? Bookkeeping and tax software? A human tax professional?

If you want tax software, check in January to see if you’re eligible for free filing with name-brand tax software.

For low-cost human assistance, check eligibility for the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs. Additionally, US military personnel can get help.

If you are choosing between robo-tax preparers such as H&R Block, TurboTax, and their competitors, be sure to check reviews and compare different tax service platforms. In addition to cost, you may also be concerned about:

  • whether the robo-tax preparer provides the forms you need and support the level of complexity of your tax return,
  • whether it can calculate the most advantageous tax strategy for you (itemizing vs. standard deduction),
  • whether it offers an upgrade path to increasing levels of human help,
  • what its onboarding path is like (can it import data from QBO, or your past tax returns, or other sources) and
  • its general ease of use for someone with your tax/accounting knowledge level.

Perhaps you want to do your taxes all by yourself to save money. Or perhaps your bookkeeping hasn’t been updated in several months, so you plan to do only that part before hiring a tax preparer. This raises the question: How do you value your time as a small business owner? 

The end of the year is the best time for you to look forward and make plans for next year. But is looking backward through your books to reconcile six months of transactions the best way to spend your time? Only you can be the head chef of your business. In my experience, you usually can’t outsource strategic business planning as smoothly as you can outsource taxes and bookkeeping.

If you haven’t already contacted the accounting professionals who will help you, now is a great time to get started. Do you have an up-to-date electronic bookkeeping system that gives you clean reports, or is it going to be a more significant project than that? The bigger the project your taxes appear to be, the more you can benefit from outsourcing.

As an additional benefit of hiring a bookkeeper and a tax preparer – you get peace of mind by having experts on your team.

If you are hiring a tax professional for the first time, you can read up here:

Still unsure about hiring a tax preparer? NerdWallet explains how to decide whether to outsource or DIY.

Prepare your business records for tax season

Just like checking the total preparation time for a recipe so that you can get dinner to the table on time, gathering your tax due dates helps you stay on track to file on time. Do you know your tax-related due dates? For example, if you are filing quarterly estimated taxes, the fourth quarter is due January 15.

Additionally, your business entity type can affect your due date. For example, S corporations and partnerships typically have a tax return due date of March 15. Do you know when and how to file for an extension? Check TheBalance’s federal tax calendar or consult your tax professional for due dates.

Do you have any state, county, or city business taxes, registration, or licensing fees due? Do you have permits that need renewal? Do you have any legally-required professional dues (for example, in California, an attorney must maintain bar membership to practice)? Does your business include any licensing that is based on the previous year’s accounting information? If so, you may need last year’s federal/state tax returns or year-end balance sheet.

Are all your business income and expense transactions coordinated in the same place? Are your bank, merchant, and loan accounts reconciled and perfectly matching your balance sheet? We recommend a double-entry accounting system, our favorite being QuickBooks Online – but if you’ve got a system of spreadsheets or paper files with receipts organized in shoeboxes, that can work too!

If you have separate bank accounts for business and personal transactions, do you have records/receipts for all personal expenses that came out of the business account? These may need to be categorized in QBO as owner draws.

Likewise, do you have records/receipts for business expenses that came out of your personal account?

You might want to look at this QuickBooks Online explanation of small business tax preparation with a downloadable PDF checklist. It has some nice details that will help you categorize your expense receipts. (Unfortunately, the checklist still says “1099-MISC” for reporting payments you made to non-employees. The current form for independent contractors is 1099-NEC.)

Do you need to issue 1099-NECs, for example, if you have one or more independent contractors to whom you paid a total of $600+ this year? Do you have the 1099 forms or an electronic service for 1099 creation? Do you have all the information that goes on the 1099s?

Does your payroll service have all the information it needs to get your employees their W-2s on time?

If you need more time to prepare your taxes, Form 7004 allows businesses to request an automatic 6-month extension.

The Merchant Maverick and Motley Fool articles together are a pretty comprehensive resource to help you understand and get together your tax preparation:

Additionally, I like these NerdWallet and Nav articles because they’re not just about taxes but also about the bigger picture:

Here is a QuickBooks-specific year-end guide to ensuring your books are all cleaned up before you start your taxes.

Your personal income & investments

Are your records for personal taxes organized as well?

Have you received all of the expected 1099-NECs from your clients and W-2s from your employer(s)? In addition, you may receive other 1099 forms for reporting other sources of income — such as unemployment payments, health care reimbursements, student loan forgiveness, interest, or dividends.

Here’s H&R Block’s explanation of all the different types of 1099 you might receive and which forms they correspond with. In addition, some other, less common 1099s are described here by Vanguard.

Under many circumstances, refunds on last year’s state taxes count as income this year.

First-time investor?

Speaking of gains from your investments, many people have recently entered the stock or crypto markets for the first time, often with the help of a robo-advisor such as Acorns. TurboTax has a good explanation here for first-time investment tax filers and another here on cryptocurrency taxes.

Make sure you understand what’s on your tax forms for reporting your gains and losses from investments.

Deductible personal expenses

Are you ready to deduct any business expenses that came out of your pocket and for which your business did not reimburse you? Think of meal expenses, mileage, any computers or furniture you purchased for your office, etc. Again, keep receipts on file in case of an audit.

Do you have all of your receipts for your donations to nonprofits?

Do you need your insurance information for your taxes? Do you know how to get it? Do you have receipts for your deductible medical expenses?

Are people in your family in school? Do you have deductible tuition or student loan expenses?

Other things you might be able to deduct:

The taxes you paid to your state last year may be partly or entirely deductible from your federal return this year, or you can deduct your sales taxes.

Additionally, if your status is self-employed and you’ve been paying quarterly estimated taxes, you will need those records. Don’t forget to deduct your quarterly payments from your tax return for the entire year!

Here’s H&R Block’s general checklist of documents needed for filing personal taxes.

How we support you

Bliss Your Money will clean up your bookkeeping and get clear statements to your CPA or tax professional. (We can also file your 1099-NECs!) Since most tax pros charge by the hour, our ability to communicate with your CPA in accountant jargon will typically reduce your tax preparation costs.

Team Bliss is on your side, and DIYers can get more support by signing up for one of our January mastermind groups! See below for more information.


7 Ways Your Bookkeeper Can Help You Get – and Stay – Profitable.

Your Bookkeeper CAN Help You Make—and Keep—More Money. It’s not as hard a you think. And we can even put the processes in place for you. Sign up to get more details!

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