How Financial Advisors Should Prepare for Tax Season

Tax season is a busy time for advisors and their clients. You may be checking in with people, helping them get organized, and connecting with their CPA. However, just because you’re burning the midnight oil trying to help your clients with their taxes doesn’t mean you should neglect your own!

As a business owner, tax season is especially stressful. There are so many bookkeeping tasks you need to check and double check to make sure they’re lined up correctly before you file. Of course, having a trustworthy accountant or bookkeeping software can help with this. Still, it pays to give your business books a once-over before turning things over to your tax professional.

Need a little help? The Bean Team has you covered! Add these seven easy items to your to do list and you’ll be in good shape to file your taxes this year.

#1: Review Income and Expenses

This might seem like an obvious step to take, but you’d be surprised at how many advisors skip their annual income and expense review and trust their bookkeeping software to get it all right! Take a few extra minutes this tax season to go over your income an expense accounts to ensure correct allocation. This will save you time in the long run and help you spot symptoms of a bigger problem if there are consistent mistakes in your books.

#2: Prepare Your Mileage Log

To correctly prepare your mileage log, you’ll need something that indicates your vehicle’s mileage at the beginning of the year and the end of the year. From there, you’ll need to break out a list of the personal miles driven and the business miles driven.

The mileage deduction is a tax write-off that you can take, and you can currently claim 54.5 cents per mile in 2018 for business purposes. To claim this deduction, you need to be consistent about tracking the number of miles you’ve driven.

There is some confusion about what qualifies as a business mile driven. In general, you can’t claim the miles driven as you commute to and from the office every day. However, you can deduct:

• Travel between different offices (like your office and a second place of business or a work site).
• Driving done for business-related errands. This could include going to the post office to ship your client gifts, or driving to your local office supplies store to pick up pens.
• Any trips you take to meet with clients or vendors.
• All business travel miles. Whether you’re just driving to the airport or you’re road tripping to a conference - these miles count as tax deductible.
• Miles driven to complete odd jobs (this is especially important if you’re an advisor who has a side hustle - like babysitting or pet care).
• Driving to and from a temporary work location. This work location has to last for less than one year.
• Any driving during job seeking trips also is deductible! So, if you’re driving to and from a prospective client meeting or an event where you’re prospecting - that counts, too!

#3: Send 1099’s Out to Vendors

If you’re working with vendors or subcontractors who aren’t your employees (who receive a W2), and you’ve paid them more than $600 in the previous year, you’ll need to send them a 1099.

It’s often wise to send these out early and keep copies for your records. You can include these 1099’s with your tax documents as proof of deductible contracted labor expenses, and provide them to your CPA when you file.

As you get ready to send out your 1099s, there are a few deadlines to keep in mind:

• You must send the recipient copy of your 1099 by January 31. This means that any contractors or vendors who will be receiving a 1099 from you need to have that by the end of January.
• You must also file your 1099-MISC with the IRS by January 31st if you are reporting nonemployee compensation payments in Box 7.
• You must file Copy A of the 1099-MISC form with the IRS by February 28, 2018.

There are penalties if you file late, so get out in front of this to-do list item!

#4: Loans

All loans you have listed on your books need to be tied out so that the loan balance on 12/31 matches the 12/31 balance sheet. This is especially critical for advisors who have recently taken out a business loan or made a large, lump-sum payment at the end of last year (and it didn’t post to your accounts in time for year-end).

If your loans have automated payments set up and you’re not regularly checking those accounts, we recommend logging in and taking a peak just to make sure everything’s in good order.

#5: Report Income

Although you’ve already reviewed your income and expense accounts to ensure that everything’s in order, it’s important to go back and make sure you’ve reported your income correctly.

When possible, we suggest tying your income to 1099’s to keep it organized and accurate. If that’s not possible, go through your reported income with a fine-tooth comb to make sure you’ve reported any income distributions you took for yourself or distributed to employees.

#6: Check Reports

If you have W2’s going out, you’ll need to make sure that all payroll wages, taxes, and company contributions (like contributions made to a workplace retirement plan) match what the W2’s report.

In a perfect world, your accounting software and payroll software are the same and this is already done for you. However, if you use two separate softwares to run payroll and bookkeeping, you’ll need to manually check these reports to ensure they match.

To simplify things in the future, check with a professional accountant or bookkeeper to see if there’s a better software option available for your payroll and bookkeeping needs. Combining the two in one place can help rule out a number of potential accounting errors. It’s also a good way to you can simplify and streamline your business, eliminate the cost of running two separate software programs, and more.  

#7: Gather Your Documents

It’s finally here! The last step on your pre-tax-filing checklist: gather up your documents to take to your CPA. Some people prefer to keep things in a physical file or binder, while others will work with a CPA who has an online portal.

Whichever system works for you, we recommend asking your CPA to prepare a tax organizer before you send your documents their way. Most CPA’s work with a software system that can generate a tax organizer for you automatically - and it’s a good way to do a final check that you’re not missing anything.

Essentially, the organizer will list everything you submitted in previous years, and what’s required of you this year (like forms of identification, Tax ID numbers, etc.). It’s a convenient way to make sure you have everything your CPA will need and keep it in one place!

Word of Caution

While it may be tempting to file your taxes (both business and personal) yourself this year, we caution you against it. When you run your business, there are too many ways you could make a mistake without realizing it. People who have a simple tax situation often fall down and make errors in their personal finance accounting. As a business owner, your tax situation is anything but straightforward, and it’s likely changing regularly.

Even if no mistakes are made, a CPA will be able to help you file in the most efficient way to maximize your tax savings - and doesn’t everyone want more tax savings in their life? Speaking with a CPA will be especially important moving forward as changes in the tax code could potentially impact you next tax season.

Finally, you shouldn’t just be working with a CPA - you should find a bookkeeper or accountant, as well! Having an extra set of eyes on your business books is a way to help ensure that your business finances are always in order. A bookkeeper can also help you to track big-picture trends in your business finances and point out areas where expenses are too high (or too low) to support your business growth goals.

If you haven’t been working with a bookkeeper or accountant to keep your books organized this year, the Bean Team can help. We offer a wide range of services from new business set up to full-service bookkeeping. But the service you’re probably most interested in this time of year is our tax season clean-up!

Tax Season Clean Up With the Bean Team

Let us help you get your firm’s books up to date and reconcile everything before you file. We’ll ensure all your bank transactions are entered, clean up any errors, tie-out and reconcile your bank accounts, loan accounts, and payroll. Your books will be so orderly, your tax preparer will be your new best friend!

If you’re interested in receiving help this year with your books before tax season, contact us today. We’d love to hear from you.

Click here to contact the Bean Team!