Yusef Murphy, our very appreciated team accounting professional, has joined us today to break down some basics for every creative's "favorite" time of the year, TAX SEASON. Enjoy, and don't panic!
It’s tax time. It’s the time of year when everyone begins to feel that sense of dread down in the pit of their stomach. They find everything else in the world to do except work on the taxes. For many business owners, small and large, taxes are a loathsome chore. But perhaps I can shed some light on what your taxes say about your business and why it matters. Sometimes a change in perspective can provide the extra motivation needed to tackle this sometimes cumbersome, but greatly important task.
For most small businesses, the tax return will service as the financial data for your business, especially if you are a cash basis business. The financial data presents 3 key indicators that imply a lot about your business:
Revenue
This is the amount your business produces from the sale of its products or services. It also reflects the effectiveness of your operation, growth potential, and business strategy.
Expenses
This is the amount your company spends to produce the service or products it sells. These expenses include the direct costs you incur to produce the product or service as well as the general administrative cost to run your business. This amount reflects the efficiency of your business operation.
Net Profit
This is the amount that the business takes home at the close of an operating cycle. This represents the profit of the business. This amount reflects the stability and health of your business.
Why this matters…
The goals of financial information are:
· To help you make strategic and managerial decisions related to your business
· Communicate the condition of your business to others
· To help establish a framework for your business operations.
Your revenues, expenses, and net profit are the numbers you will need to direct the course of your business in the next operating cycle. These numbers will allow you to make adjustments in operating processes, set goals for growth, and create new strategies for increased profits.
Also, these number are used by lenders, investors, vendors and potential customers to evaluate the health, value and potential of your business.
Finally, these numbers establish a framework for your business operation. They will help you to identify tasks, procedures, and training that will be needed in order execute your business strategies.
The points of all of this, is to help you understand the importance of your tax preparation and to encourage you to embrace the process as an opportunity rather than a chore. Think of it like a report card. You want to be shooting for an “A”.
To help you in your preparation, here’s a list of items you’ll need to prepare your taxes:
· Last year's business tax return
· Articles of incorporation
· Partnership agreement
· Accounting records
· Bank statements
· Credit card statements
· Payroll reports
· Detail of asset purchases
· Depreciation schedules
· Detail of asset dispositions
· Vehicle information
If there are any small business accounting or tax related questions that you may have, feel free to send them to me at aatpros@gmail.com
Yusef Murphy