Documents Needed When Preparing Small Business Tax Returns

Small business tax returns are more complex than individual tax returns, and small business returns, therefore, require additional documentation. If you run a small business, you'll likely need these documents when preparing your business's tax return.

1099 Forms

Form 1099 is used by businesses that hire contractors, and your business could have one or more of these to file. There are a few different specific versions of the form, but they all fall into the same 1099 series.

If you've done work as a contractor, your business's clients may issue Form 1099 to show how much they paid you over the course of the year. Whether you actually receive a 1099 depends on a business's interpretation of tax laws, but you could receive several if working with multiple clients. Writers, tradespeople, and consultants commonly have their pay reported this way.

If your business has hired contractors, the business may have to issue Form 1099 to the contractors that were hired. Whether you do indeed have to provide contractors with these forms depends on the specifics of your business's situation. A professional who specializes in small business tax preparation can determine if issuing 1099s is necessary.

Profit and Loss Statements

Profit and loss statements (P&Ls) show how much your business made or lost during the year. The statements detail both revenues and expenses, totaling all of each and then doing the arithmetic to arrive at a final number.

While P&Ls must include all revenues and expenses, the transactions can be condensed by category. There isn't a standard way to condense and categorize, but a small business tax prep professional can help you develop a system that's logical. Using a logical system is important so that the government's tax officers can understand your arithmetic.

Invoices and Receipts

Your P&Ls should be based on the invoices and recipes that your business has, and all of these documents ought to be saved in a file. You don't have to send invoices and receipts in with your small business's tax paperwork, but you might have to provide the supporting documents if your business's P&L statements are audited.

When reviewing invoices and receipts, remember to check for both physical and digital ones. You don't want to overlook any that were sent one way or the other, and you don't want to double-count any that were sent both physically and digitally. Also, create a filing system for both types of documents.

For more information about small business tax preparation, contact a local company.