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Many small business owners feel stressed during tax season because filing the return takes more than just calculating numbers. It generally involves collecting documents from different sources such as receipts, payroll records, expense records and asset information, and if there are some missing documents, it would take a long time for them to file their taxes. A good small business tax preparation checklist can help turn the filing process from a stressful experience into a series of easy and manageable steps.
This guide outlines the essential tasks needed by small business proprietors in preparing for taxation. We shall look at the documents and financial data needed, simple steps to put that data together, as well as a checklist to avoid overlooked information when filing taxes. Also discussed are the deductions and credits available and the ways to organize financial documents through the utilization of checklists while preparing taxes.
When Should You Start Your Tax Prep Checklist?
Instead of waiting until the very last minute to organize your taxes, it is preferable to start working on your checklist 60-90 days prior to the deadline. Starting early gives you enough time to gather your financial documents and resolve any discrepancies.
Typically, calendar-year businesses, including partnerships and S-corporations, must file their tax returns around mid-March, while sole proprietors, single-member LLCs, and C-corporations must file around mid-April. Filing your taxes early will allow you to be well-organized and minimize mistakes that happen when doing so in a hurry.
Another reason to start preparing taxes much before the deadline is that you must make sure you have received all the forms you need. At the beginning of the year, you should get your W-2 and 1099 forms from your employer or a customer. If a document is missing, you can have enough time to sort it out with that person. Finally, you should compare your forms with your financial statements to identify any errors.
| Entity Type | Filing Deadline | When To Start Gathering Documents |
| Partnerships | Mid – March | December – January |
| S corporations | Mid – March | December – January |
| Sole proprietors | Mid – April | January – February |
| Single-member LLCs | Mid – April | January – February |
| C Corporations | Mid – April | January – February |
What Tax Forms Does Your Business Need?
The type of tax forms that need to be filed depends on the nature of your business and its classification in the eyes of the government, and having this information at hand will help you gather everything in advance.
- Sole proprietors and single-member LLCs: Form 1040 Schedule C is used to report income or losses from a business they operate regularly.
Source: IRS guidance on Schedule C (Form 1040) - Partnerships and multi-member LLCs: Form 1065 is used to report a partnership’s income, gains, losses, and deductions.
Source: IRS information on Form 1065 - S corporation: Form 1120-S is used to report the corporation’s income, gains, losses, deductions, and credits.
Source: IRS Form 1120-S Information - C corporation: It is generally a separate taxpaying entity that files Form 1120 and pays tax on its taxable income.
Source: IRS information on Form 1120
The Complete Small Business Tax Preparation Checklist
With this tax preparation checklist, it will help you arrange all documents and information necessary for filing business taxes. With the use of this checklist, you will be able to organize your accounting records and information necessary for filing your business taxes.
Income Documentation
Collect records of all income your business received during the tax year.
Expense Documentation
Collect bills, invoices, and all supporting documents for any expenditure regarding the business.
Payroll Documentation
Organize all payroll records systematically and keep them available for future use as well as for the processing of salaries.
Asset and Depreciation Records
Keep records for business property and other assets purchased, sold, or disposed of during the year.
Home Office Documentation
If you may be eligible to deduct expenses incurred in connection with your business using part of your home, you must provide the following documentation:
Other Essential Documents
Keep these additional business and tax documents ready for tax preparation.
Having all these papers organized and checking your tax prep checklist before filing will ensure that your tax preparation experience is a smooth one.
Checklist Differences by Business Structure
The general tax preparation checklist is suitable for small businesses. However, the documents needed may vary depending on the business structure. Depending on the type of business, additional supporting documents might be necessary to support the tax return filing. Consult the requirements of your specific case and incorporate the documents in the checklist.
| Entity Type | Extra Documents Needed |
| Sole Proprietors / Single-member LLCs | Business mileage logSelf-employed health insurance premium recordsSEP IRA contribution recordsSolo 401(K) contribution records |
| Partnerships / Multi-member LLCs | Partnership or operating agreementRecords of partner contributionRecords of distributions made to partnersPartner capital account statements |
| S corporations | Officer/shareholder-employee W-2sRecords supporting officer compensationShareholder basis worksheetHealth insurance premium records for shareholder employees |
| C corporations | Dividend distribution recordsCorporate meeting minutesStock transaction recordsShareholder distribution records, if applicable |
Your specific entity records will need to be included in your overall tax preparation list, depending on the form of your business. It may be simpler to prepare the business tax return once you have both general and specific entity records organized.
Common Small Business Tax Deductions and Credits To Check For
It would be a good idea to check some general deductions and credits for businesses prior to submitting the business tax return. Every person is different, and every company has its own demands and needs to be satisfied. Therefore, it is always going to be case-specific. Treat them as pointers rather than as deductions and/or credits that can benefit any business.
Deductions to Check For
Taxpayers can use these options in order to determine which of the incurred costs are qualified for deductions under the tax law.
Credits to Check For
Small businesses also need to consider whether they are eligible for any business tax credits that may be available to them. The IRS’s guidelines for Credits and deductions for businesses publish the various business credits along with the usual forms required for claiming them.
Each credit has its own unique qualifications and restrictions. Businesses need to assess the present-day qualifications as set out by the IRS before claiming a credit.
How a Tax Preparation Checklist Reduces Filing Errors
Reviewing financial records before filing helps identify missing information and possible errors.
By preparing a checklist, examiners can identify gaps in financial records, errors in information provided in the tax return, and such issues.
- Reconcile Bank and Loan accounts: By comparing accounting records against the bank statement at the end of the year and the loan statement, it becomes possible to find those transactions that otherwise could not have been perceived, which were duplicated or mischaracterized and therefore might give rise to mistakes in the reported amounts of income and costs in the tax return.
- Update Mileage and Asset Records: Enter the business mileage log and evaluate the year’s purchases/disposals of assets, vehicles, and equipment. Failing to document mileage or assets may lead to loss of deductions and incorrect depreciation amounts.
- Compare With Prior Tax Return: Compare the figures for this year with those from the previous year’s return and determine if there are any significant differences. Any substantial difference in revenues, expenses, salaries, or depreciation could mean that there was an omission in recording the transaction, etc.
- Review Accounts Receivable and Inventory: Before filing the income tax return, it is important to review the accounts receivable and inventory for any uncollectible receivables or old stock.
The process for tax preparation for an S corporation or any other kind of partnership may involve checking proprietorship, contribution, distribution and basic data in the checklist used when filling in the Schedule K-1 form.
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Organizing and Storing Your Tax Documents
If your tax documents are kept in order throughout the year, you will not have problems preparing them when the time comes for filing taxes. To organize your tax documents for each year, you might want to consider creating a new folder for all your tax files on your computer. As documents such as receipts, invoices, bank records, payroll, etc. are created, they can then be saved in the corresponding folder. Maintaining organized financial records throughout the year is also an important part of small business bookkeeping.
A systematic naming convention for your files will further aid in finding your records. According to the IRS guidance on keeping business records, retention periods can vary:
- Keep records for 3 years in most situations
- Keep records for 6 years if more than 25% of gross income is not reported
- Preserve records for 7 years for claims involving worthless securities and bad debt deduction
- Keep records indefinitely if you do not file a required tax return
- Employment tax records should be maintained for 4 years
DIY, Your CPA, or Outsourced Support: Getting the Checklist Done
For simple finances, preparing a tax checklist is a task that can be handled internally as a business grows larger. As the business hires more employees, engages with several states, purchases property and works with a more complex business structure, gathering the needed data can become a coordinated effort.
In many small businesses, it is common for a small business to prepare the appropriate forms and complete a checklist for the certified public accountant. The accountant will then evaluate the provided information in order to identify any additional required documents. Proper organization of records allows the tax preparer to access the necessary documentation needed for the return.
CPAs and accounting firms also create similar checklists under which they require documents and information from the client before the busy filing period. Early initiation of the process will help reduce the need for multiple follow-ups and give ample time for the preparation of the information.
During busy tax season periods, the CPA firms may consider outsourcing tax preparation service support to help and manage the preparation tasks. In cases where there is already an established workflow and review process, any extra preparation support will assist internal staff in spending more time on the review and client service activities. Outsourcing tax preparation support does not shift the professional responsibilities of the firm.
Frequently Asked Questions
Tax preparation for small businesses usually requires income documentation, expense records, bank statements, payroll documentation, asset purchase and sale records, and previous tax returns. The specific documents will vary depending on the nature of the business.
A small business tax preparation checklist should include income records, business expenses, payroll documents, bank and credit card statements, estimated tax payment records, and tax forms relevant to the business structure.
Ideally, complete your tax preparation checklist before tax preparation begins. Businesses can start organizing documents 60 to 90 days before their filing deadline to identify missing records and resolve discrepancies.
A tax preparation checklist helps reduce filing errors by ensuring that income, expenses, deductions, and supporting documents are reviewed before a tax return is filed. It also helps identify missing information and inconsistencies early.
In the United States, businesses generally need to keep tax records for at least three years, although some situations require longer retention. Employment tax records generally should be kept for at least four years. Keep asset records as long as necessary to calculate depreciation, gain, or loss when the asset is disposed of.
Yes. A bookkeeper or outsourced accounting provider can help organize financial documents, reconcile accounts, identify missing records, and prepare supporting schedules. A qualified tax professional should review tax positions and the completed return as appropriate.
The basic checklist is often similar, but required tax forms depend on the business structure and tax classification. A sole proprietor generally reports business income and expenses on Schedule C of Form 1040. An LLC may be taxed as a sole proprietorship, partnership, or corporation, depending on its ownership and tax elections.
