This is a checklist to help small business owners get their accounting records organized for the annual income tax filing.

Keep in mind that the better your business’s bookkeeping records are the less your CPA firm will charge you to prepare the annual tax returns as they charge by the hour.

This applies to single owners (proprietorships), partnerships and corporations.

Monthly or Yearly Bookkeeping?

It is much, much better to get your bookkeeping done on a regular basis vs. annually only for tax only purposes.

Yes, you have to file tax returns and the accounting needs to be finalized but it is more optimal to have monthly financial statements – balance sheet and profit & loss statement to effectively manage your business.

If you only do annual financial statements for your tax return you are missing out on key information that business owners need to successfully manage their business affairs including:

• Running bank balances
• Accounts receivable – money owed to the business
• Bills owing (accounts payable)
• Cash flow
• Business profitability – if you are only doing annual financial statements for tax filing purposes, it is too late to notice situations and get them corrected.

Checklist of Needed Items for Annual Tax Return

These are the items that your CPA firm will need to prepare your annual tax return:

1. Completed bookkeeping – all income and expenses recorded. Bank accounts reconciled. All credit card transactions recorded. Inventory counted and costed.

2. Financial statements – balance sheet and profit & loss. The bookkeeping records and year-end adjustments (such as annual depreciation) need to be finalized. Review the financial statements line by line to ensure that the figures are correct, then fix any bookkeeping errors.

3. Asset additions – this would be a detailed schedule of additions and disposals of furniture, equipment and automotive.

4. Loans – details of new loans or mortgages.

5. Owner accounts – a schedule of contributions (new capital invested in the business) and withdrawals. For corporations amounts paid as salaries or dividends. For individuals and partnerships any home expenses for business use. Mileage logs for auto use so business use can be determined.

6. Tax notices – copies of all Notices of Assessments and details of tax payment installments.

7. Log in information for your accounting program. E.g. QuickBooks or Sage. Ideally your records are online. If you are using a desktop version, then you will need to provide a printed trial balance (list of all assets, liabilities, income and expenses). If your accounting is complete, the CPA can quickly finalize the year end and prepare the tax return.

Review of the Financial Statements

Once the bookkeeping has been completed, do a review of the financial statements:

Balance Sheet – list of business assets, liabilities and equity. Do a review to ensure the balances make sense and appear reasonable. E.g. run an aged accounts receivable listing and investigate potential errors.

Income Statement (profit & loss) – ensure it is reasonable e.g. if you have a bank overdraft (which indicates poor business results) but a high profit on the income statement, then something is likely incorrect.

Completing the year-end accounting is need for tax returns but it is also a great opportunity to examine how your business is doing as well as a guide to corrective actions when situations are noted.

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