Year-End Checklist for Startup Taxes

Another year is quickly coming to a close and you’re probably starting to think about preparing your startup taxes. 

Year-end can be a stressful time of the year and bring many extra things to focus on. But it doesn’t have to take too much time away from running your business or enjoying the season. You just need to properly prepare and not put everything off until the very last minute.

To help you have a smooth year-end, we’ve put together a little checklist for making your startup tax prep as easy as possible. 

Year-End Close

Closing the books for the year is a critical (but sometimes lengthy) part of your fiscal year. Depending on the size of the company and the volume of your transactions, it’s not uncommon for it to take up to two months to close the books.

The year-end close does more than present you with an overview of how the year went; it serves as the basis for your tax filings. Although it can be a time-consuming process, ensuring that your financial figures are correct, accurate, and reconciled across all internal and external accounts is a critical aspect of ensuring the financial health of your business. 

Quick Year-End Closing Checklist for Startup Taxes

Here are the high-level points you and your accountant need to hit for a great year-end closing:

1. Record all revenue and expense transactions.
2. Record accrual entries for services rendered and goods received but not invoiced. If you’re not sure about this one, talk to your accountant. They will know what to look for and what postings are typically necessary.
3. Reconcile your bank and credit card accounts in your accounting software as of 12/31/21 and address any open items that are not cleared.
4. Write off any outstanding invoices that won’t be paid as bad debt. You can do the write off once a year. But along the way, make sure to document all attempts to collect payments and remind your customers about the payments due. 
5. Prepare & review your final financial statements – P&L, Balance Sheet, and Statement of Cash Flows. These give you visibility on the financial health of the business.
6. Understand the core message of the statements. How did you generate your net income? What are the driving factors behind the numbers? Record any depreciation on assets.

Correct and accurate figures are an essential part of doing your taxes. Regular account reconciliations and consistently collaborating with your accountant and tax advisors can make the year-end process as painless as possible. 

Checklist for Startup Taxes

Tax laws are constantly evolving. 2021 is no exception. Although the last major changes to the tax code came from the 2018 Tax Cuts and Jobs Act, the COVID-19 related incentives and stimulus packages will add a layer of complexity and uncertainty. 

This checklist can help you make this year’s tax time run as smoothly as possible:

1. Meet with your accountant or CPA. Together you can discuss your business’s developments over the past year to help you determine your approach for this year’s tax season.
2. Complete and assemble all financial statements and documentation from your year-end closing.
   
   This includes:
   a. Income statement (P&L)
   b. Balance Sheet
   c. Statement of Cash Flows
   d. Bank and credit card statements
   e. Previous years’ tax returns
   f. Payroll documentation
   g. Partnership agreements and/or articles of incorporation
   h. Asset purchasing details and documentation
   i. Depreciation schedules
   
   
3. Document everything. The IRS requires you to retain evidence for all expenses, including receipts and how they apply to the business. This is especially important when taking deductions for travel and meals & expenses.
4. Double-check with your accountant that you are filing the proper forms for your business structure (i.e., sole proprietor, C- or S-corporation, partnership, etc.).
5. Take all allowable and applicable deductions and credits.
6. Don’t forget to let your accountant know about any estimated tax payments you made throughout the year for 2021.
7. Align again with your accountant.
8. File on time. Delays bring penalties, which can add up quickly.

Other Advice 

Many business owners treat taxes as something to scramble for during the first and last weeks of the year. While this is a common approach, you’re better off treating taxes as a year-round topic. You’ll save yourself, your employees, and your accountant a lot of headaches if you maintain clean books and proper documentation all year long.

Your accountant should help you with this, but don’t forget to use common small-business deductions:

1. Rent for an office and/or retail location
2. Dedicated home-office spaces
3. Advertising (typically fully deductible)
4. Vehicle (deductible according to the level of business use)
5. Heat, electricity, water, gas, internet, and telephone
6. Business travel and meals
7. Employee Salaries
8. Depreciation on equipment

It’s important to note: Don’t simply spend money because it will reduce your tax burden. If you know the business will benefit from certain expenditures, it’s possibly a good idea to buy in advance. Examples include, getting a bulk discount, accounting for inflation, and things of this sort. 

How an Experienced CPA can Help

You probably shouldn’t be trying to handle your business’s taxes on your own. Even if you have a competent internal finance team, it’s important to align every step of the way with your accountant to ensure you are taking advantage of all deductions and tax credits that your business is eligible for.

They can help you make sure that what you’re doing makes sense, aligns with the legal requirements and GAAP/IFRS standards, and matches your tax strategy. Taxes can be a complicated topic. An experienced partner like Founder’s CPA can help you make sure you’re taking a proper approach to your taxes year-round. Reach out to Founder’s CPA’s expert team for a free consultation on making tax time as painless as possible.