Preparing for Corporate Year-End Taxes: Part 1 – Previous Year’s Information
Preparing for Corporate Year-End Taxes: Part 2 – Bookkeeping
Preparing for Corporate Year-End Taxes: Part 3 – Payroll Records
Preparing for Corporate Year-End Taxes: Part 4 – Remittances
Preparing for Corporate Year-End Taxes: Part 5 – Other Important Documents
This article explains other important documents that may need to be provided for corporate taxes.
Just the word “taxes” makes some business owners cringe. Taxes tend to involve quite a bit of time and organization to collect the necessary information and documents that an accountant may need for filing. Rather than avoiding this until year-end when taxes must be done, it is very beneficial to be aware of the required documents so preparation can happen throughout the year. Preparation saves valuable time, and therefore money, from not having to backtrack and find information or documents that were missed throughout the year, and can be as simple as saving any paper trail or electronic documents that relate to tax items. In this final article in our series, we explain 6 different types of documents that may be important to prepare for corporate taxes.
1. Statements of Investment Activities
If the business has any investments during the year, the accountant will need any statements that are received from the companies the investments are through. The statements will have valuable information that will be needed to ensure the accounting has been done correctly, and that investments are being claimed properly for taxes.
Most financial companies will send out monthly or quarterly statements, as well as an annual statement. While taxes are done annually, the accountant will most likely need more than the annual statement from investments, as their annual statement may have a different cut-off date than the corporate fiscal year-end date.
2. Loan Statements
For loans, an amortization schedule or statement will need to be requested for the company’s fiscal year-end date. This will show the balance owing at that date, along with the payments that were made throughout the year. Loans could be any mortgages on owned buildings, vehicle loans, or other similar bank loans. The amortization schedule shows a table that breaks down each payment made throughout the year. The vital information shown on these statements is the amount paid to the principal, which is the original amount of the loan, and the interest that was paid. For each payment the interest is paid depending on a predetermined interest rate, while the rest of the payment is applied to the principal.
Business owners are usually happy to hear that many loan interest payments are tax deductible, meaning they will be used to reduce the business’s taxable income! The accountant will use these statements to ensure each payment was properly accounted for, as this will impact the corporate taxes.
3. Inventory Listing
The accountant will also need an inventory listing or summary that shows the company’s inventory at the beginning of the year as well as the end of the year. This will allow the accountant to reconcile with the records that have been kept in the accounting software, and to make any required adjustments. Inventory is very important as it is used to calculate the cost of goods sold, as well as the value of the items to help determine net income for the business. Cost of goods sold is the sum of all direct costs that are associated with manufacturing a product.
4. Asset Purchases and Sales
If there are any sales or purchases of equipment throughout the year, it is important to keep the documents associated with them. These documents could include receipts, bills of sale, or purchase agreements. When it comes to accounting, especially taxes, the more paper trail or documentation the better! Generally, this would involve purchases or sales that are above $500 and that will last over a year, as these would then be considered fixed assets, also called tangible assets or property, plant, and equipment (PP&E). These are assets that are considered not easily converted into cash, and fixed indicates they will not be consumed, used up, or sold within the current accounting year. Examples are vehicles, machinery, furniture and fixtures, computer equipment and software, office equipment, land, and leasehold improvements.
If items that are sold were leased, it is also important to include the lease agreements. This allows the accountant to see the amount still owing on the lease, and to ensure the proper accounting is done for the payments throughout the year and for the amount still owing.
5. Insurance Policies
Accountants will also require documentation for any insurance policies the company owns. This could include vehicle insurance, rental insurance, mortgage insurance, and life insurance, for example. Copies of insurance policies, especially for new purchases, along with any statements that are received will be needed by the accountant. Some insurance premiums are pre-paid, while others are a monthly expense. However the policy is set up will affect how the accounting is done for the payments, which the accountant will check when completing corporate taxes. For life insurance, the policy type will also affect the accounting as some policies have an investment portion attached to them which will need to be reflected properly in the business’s accounting records.
6. Unique or One-Off Happenings
Business rarely goes as planned. Throughout the course of a fiscal year there may be unique events or happenings that occur that could affect taxes. If any unique events occur, it is important to keep a paper trail for the accountant, or to speak to the business’s accountant once it occurs to see what information they require, if any. For example, if a fire occurs at the location of business, this could result in using interruption insurance, which covers the income of a business while they are closed and rebuilding the location.
The End of Year-End Taxes
We have now reached the end of our series on preparing for corporate year-end taxes! Preparing may not come naturally to many of us, and may be avoided even more when it comes to corporate taxes. When it comes time for taxes to be done at the end of the year, and that time does inevitably come every year, you will thank yourself for having done at least some preparation throughout the year with some of the knowledge on what will be needed – and the accountants will definitely be thanking you too!