It’s a new year, and that means it’s time to start thinking about how to get your business prepared to file taxes over the next several months. Whether you’ve run your business for years or you’re filing for the first time, here are some tips for what to consider as you prepare to hand last year’s data to your tax partner.
Why think about taxes in January?
Besides trying to guess how much money you owe to the IRS every year, the primary reason to make sure your tax documents are as accurate as possible is accountability.
When you file your taxes, you’re creating a picture of your business over the past year that IRS will hold you accountable for defending in case of an audit. Since this process accounts for many, many data points over the last 12 months, you’ll want to give your accounting team (and yourself) as much time as possible to get things right.
Aside from avoiding issues with the IRS, you’ll want to get a jump on your tax prep if you plan to sell your business in the next year. There are plenty of legal documents at play during a sale, and the sooner your finances are in fighting shape, the less stress you’ll put yourself through when it’s time to go through the due diligence process.
What Your Tax Professional Needs from You
Once you’re ready to hand off your financials to your CPA partner, you’ll need to make sure you’ve got two major documents on hand: your P&L from the last year and an up-to-date Balance Sheet.
The P&L, or Profit and Loss Statement, tells the IRS how much you profited during the year. Accuracy is key here, since your profits are what ultimately get taxed and, as mentioned above, are subject to an audit if things don’t seem to add up.
Your Balance Sheet, appropriately enough, needs to balance across all areas: your bank balances, your inventory balance, your sales tax liability, and more. Your CPA will want to see that your Balance Sheet reflects the numbers your bookkeeping team has come up with throughout the year so that every dollar is accounted for.
The bottom line is to get these documents ready as soon as possible; you’re likely not the only business your CPA partner is preparing taxes for, and the last thing you want is to drop a bomb on their process by waiting until the last minute to get them the information they need to do a thorough job.
Where to Find Tax Info in Seller Central
Seller Central is Amazon’s sales dashboard, and if you sell on platforms other than Amazon, you’ll want to gather tax information from those platforms as well. However, since Seller Central can be difficult to navigate, here’s how you can find the tax info you’ll need on Seller Central (and here’s Tyler Jefcoat explaining how to find your Amazon 1099K over on Steven Pope’s YouTube channel!).
To get your financial data, skip the “Business Reports” section. This section doesn’t separate out sales correctly, so any information you find here isn’t guaranteed to be accurate.
What you’ll need to do instead is go to the Payment section and choose the date range report for the tax year you’re looking for. This data is part of the payments dashboard, and since it comes directly from your Amazon sales, it’s more accurate than the Business Report.
The other place to look for tax information is in the Inventory Reconciliation Report, found in the Fulfillment Reports section of Seller Central. This report gives a summary of FBA data that includes beginning and ending inventory balances for the year. You can then use this data to help you calculate COGS by multiplying your ending inventory by your product value.
If you’re ready to get your tax info in order but you’re not sure where to start, you likely fall into one of two categories: time rich but on a budget, or flexible with cash but unable to commit much time to doing your own bookkeeping.
For those business owners looking to save some money and do the bookkeeping themselves, we’ve got a DIY Accounting course that will teach you how to clean up your own books on a budget and at your own pace.
If you can spare some capital to outsource your books and would rather not do the legwork yourself, we’d love to be on your team and get you the most bang for your accounting buck. While Seller Accountant does not file taxes, we’re e-commerce accounting experts who want to get your books in shape and make your tax season stress free. You can book a free 15-minute discovery call here on our Contact page.
No matter which option you choose, get a jump on your tax prep sooner rather than later. Your future self (and your accounting partners) will thank you!