It's Tax Time Again!
And your CPA needs your financial information to complete your taxes.
Are you prepared?
Here is a short list of six important "to-do's" for your QuickBooks file to help your CPA create accurate tax returns.
Separate Personal vs. Business Expenses
Make it your 2018 goal to not have any personal expenses in your practice’s QuickBooks file. Ensure accurate financials for your practice by keeping a six-lane highway between business and personal expenses. While it is certainly a temptation, it is one best avoided.
If the practice is a sole proprietor entity, create an Owner's Draw (equity) account for personal expenses. If the practice is a corporation, create an equity account called Shareholders Distribution to designate any “accidental” personal expenses. Creating separate accounts allows the accountant to easily locate personal transactions and deduct them appropriately in the tax process.
The best habit is to not charge or write a check for non-practice expenses or debt, but double check credit card and checking account transactions for any personal transactions that would keep you awake at night during an IRS audit.
If you are unsure of what is deductible, learn for yourself what the IRS states is an allowed expense. A plethora of information awaits your reading on the
IRS website
.
Sort your Miscellaneous Account
If you are unsure of how to label the transactions you have assigned to the Miscellaneous account, how will your accountant know what to do with them, or how to assign possible tax deductions? More than likely, there is already an existing account where all miscellaneous transactions can be appropriately designated. Evaluate each transaction in the Miscellaneous account to determine the appropriate expense account location.
Categorize Meals Properly
Who you are with and where you are determine whether you receive a tax deduction for meals. Generally speaking, employee meals, referral meals, other business lunches and CE meals are all tax deductible at 50%.
**Remember, this is an area that will be
highly scrutinized
in the event of a tax audit. Unfortunately, buying Starbucks every day does not meet the criteria for a tax deductible meal. (Or believe me, I'd take it!)
Allocate Principal & Interest
Standard accounting method states that loans are liabilities and, therefore, should be set up as liability accounts. You will receive a statement from your lender regarding the amount of loan interest you paid for 2017. If you have not split the payments between principle and interest monthly, then enter the interest amount in the loan’s ledger as an “Increase” as of 12/31/2017, which will increase your balance to the amount owed.
Account for Patient Reimbursements
Patient reimbursements are NOT expenses. Patient reimbursements reduce your income. You entered the initial patient payment as income into QuickBooks, therefore, if you returned a portion of that patient payment (deposited income), it reduces your income.
This makes Patient Reimbursements an income account, albeit negative income. When you create a check to reimburse a patient, the account used on the check will be a separate Patient Reimbursement income account. After all, you do not want to pay taxes on income you do not get to keep, do you?
Use an Accountant’s File
When you do get ready to send your CPA your QuickBooks file, email them an Accountant’s file. An Accountant’s file gives them the ability to work on your file through the end of the year, allowing you to continue using the file in the new year. The accountant can then make the appropriate changes in your account, send those changes back to you, and merge them into your current account.
A Final Note
Send your accountant a full year Deposit Report from the practice software, any notes you may have made about your QuickBooks file, and as much information they need to create your tax reports accurately. Do NOT sabotage your CPA by not providing them with what they need to do their very best job for you, even if they do not ask for it.
Was gathering your information for taxes painful this year? Does your QuickBooks need to be cleaned? Are you entering everything correctly? Are you downloading your credit card transactions? How can you make this process easier this next year?
Great questions that you need to answer so that truly this time next year will be a less painful experience! How can I help you?
Happy Accounting!
