Back in the 1930’s Ned Sparks was a silent film star. On his tax return, he wrote off his $3,000 dentures as a business expense, claiming he needed them for work – so he could enunciate words properly. The IRS rejected his deduction, claiming that Ned couldn’t prove that he used his dentures only for business purposes.
While it is very important and can save you money to look at every aspect of your small business for possible deductions, it is also possible to go too far. Many tax deductions are obvious, while others might be a bit ambiguous. In this blog we’ll talk about meeting with your CPA and what questions you should ask during your annual review.
BEFORE your CPA meeting:
Get ready for meeting with your CPA – Things to do BEFORE:
- Gather the reports from last year, including:
- Last year’s tax return
- Balance sheet and income statement (P&L)
- W-4’s and W-9’s from employees
- Any tax forms you have received from vendors, contracted labor, etc.
- Expense reports for the business
- Write a list of questions you would like answered
- Questions to ask prior to your meeting:
- What records do you need?
- What additional information or business reports do you need?
- How much time should I allow for the meeting?
- What will the review process entail?
- How much does the review cost?
During your CPA meeting:
You’ve gathered your information – now it’s time to meet with your CPA and ask questions!
What to ask your CPA during your annual meeting:
- How’s my bookkeeping? Are there programs you prefer to make tax prep and filing easier?
- Is my original business structure still best for my tax goals?
- Do I need to change filing status?
- Is my current “C-Corp” (example) still a good option.
- What changes should I make in 2022?
- What additional records should I be keeping?
- What are my taxes costing?
- Is there a way to decrease my taxes?
- What is the best way to improve my business situation?
- What can I deduct?
- What is my risk for an IRS audit?
Small Business “write offs” – Things you can deduct:
I’d like to add a special note about what you can deduct from your small business taxes, and the reason you want to ask your CPA about them. Your CPA may think of some items you’ve never thought about, that are perfectly legal and reasonable to deduct. Here are some examples:
- Health insurance premiums
- Charitable gifts, including out-of-pocket expenses for charitable work. For instance, if your restaurant donates cupcakes to a charitable organization, you can deduct the cost of ingredients used.
- Cost of a babysitter – You may be able to deduct this cost if you are working.
- Lifetime Learning: That $100 you paid to learn QuickBooks for your business – deductible!
- Things that benefit your business: It’s strange, but the IRS allowed a junk-yard owner to write off the cost of cat food for the feral cat who kept mice and rats away.
**Make sure you run all your uncommon deductions past your accountant. Your CPA will be able to tell you which deductions are currently allowed.
After your CPA Meeting:
Reward yourself for making through your meeting! Maybe take yourself to lunch or offer your CPA lunch! Here are a few more productive ideas of what to do after you’ve met with your CPA:
- Complete the tasks they’ve asked you to do.
- Record keeping
- Copies of forms
- Copies of receipts
- Make a calendar of due dates
- Quarterly taxes
- Monthly reports
- The next meeting with your CPA
- Follow-up about the things your CPA said they would do
- Continue to keep those receipts!
Your annual tax review can go smoothly if you are prepared. Make time to gather the documents you’ll need before your meeting and make sure you ask the right questions.
For additional resources on what to ask your CPA before your annual tax meeting, or information on possible small business deductions, please contact us at the Small Business Development Center – SBDC – serving Collin and Rockwall Counties, Texas.
Blog post by: Alex Plotkin