Taxes don’t have to be taxing!
Did your CPA just finish your taxes and ask you to sign?
Does it make you cringe a little to sign because you have no idea if it’s really correct or not?
Do you completely understand and trust what they’ve done?
Ideally, your tax preparer will tax the time to review your return with you. While this may not be possible when you’re filing the return within the week before it’s due, it is still something that they can and should provide if you ask - perhaps at a later date. A good CPA will also offer to meet with you later to review your return, explain what you aren’t sure about and help you plan for next year. If you are trying to hire the cheapest tax preparer, this may not be included, but if you want to get your money’s worth, we highly recommend finding one who will do more than just keep you from having fines for incorrect or late filing. Paying extra time later, may save you a bunch in taxes and/or headaches.
If you have to sign before you can talk with your CPA, here are a couple of things you can do to be a little more comfortable with signing:
Pull out your Profit & Loss statement for the year that was sent to your CPA or is in your system.
Does the total income on the return tie or come close to what is on your books?
Do the expenses seem to be reasonably close? There are items like depreciation, meals, mileage, and home office expenses that may cause variances, but most of the other expenses should be similar.
Look at the list of Fixed Assets that should be included on a list from your CPA. Do you still own all these items? Are items missing?
Print out your Balance Sheet for the year that was sent to your CPA or is in your accounting system. If you are filing a 1065 or 1120S, there is a schedule L that reflects your balance sheet items. Compare these items on Schedule L to your balance sheet. There are reasons for differences, but many of the lines should tie.
Look at your K1 if you’re a member/partner in a partnership or S Corporation. Look at what your equity is in the company and what it states you took out last year. Does this seem accurate? This equity on the K1s becomes important both for your income for your personal return, but also if the business is sold, dissolved or ownership changes are made.
Here are a few variances that may be ok:
Did your CPA give you journal entries to do (almost every set of books needs some additional entries)? Make sure you do these before comparing the figures…and make sure the prior year entries are in as well.
Not all the meals are deductible on your returns. This can add up over time.
Depreciation methods can vary greatly and you can do it differently on your tax return. If there are no depreciation entries on your books, the variance will be quite large.
Sometimes mileage, home office use, and similar small business owner expenses are only recorded on the tax return.
What if you find errors or have questions after it’s filed?
Talk with your CPA. Depending on the issues, it may be prudent to file an amended return. It may be that the variance is fine and that it is a book vs tax difference. Sometimes, it is something that can be corrected on a future return. Your tax CPA should also help you with tips to prepare for next year.
My CPA says, ‘extend.’ What does that mean to me?
Here is an easy to read and downloadable pdf: https://tinyurl.com/yn29m7xs
Have you noticed how important accurate books are for your business?
If you need help getting your books correct, someone to explain your numbers to you, or help with saving for next year’s tax payments, reach out to us today!