Tax Readiness Challenge

Find all your tax mailings. 1099s, W-2s, 1098s, interest statements, brokerage reports.

If you have bookkeeping software, find your P&L and balance sheet. Make a PDF of 1/1/22 – 12/31/22 and balance sheet ending 12/31/22.

If you do not have bookkeeping software, finish updating your spreadsheet of tracked income and expenses. Note your cash balance on 12/31/22 in any company checking or savings accounts.

Document your deductible business expenses that didn’t run through your financial reports or may not be clearly categorized. Your accountant can make these adjustments concurrent with your tax returns. Here are some commonly missed deductions:

• Bank and credit card fees
• Cleaning and janitorial services
• Client, entertainment, and in-office meals (50%; entertainment sunsets in 2022)
• Clothing rental (e.g., Rent the Runway)
• Consultants
• Event tickets and admissions
• Home internet and utilities
• Home office rent (directly or as a deduction)
• Insurance premiums that protect your business function (disability, key person, long-term care)
• Interest payments (including credit cards)
• Laptop, tablet, lighting, props, and anything related to content creation
• Legal fees
• Membership dues
• Mobile phone and monthly plan
• Mileage or leased auto expenses 
• Office furniture
• Office supplies and snacks
• Owner health insurance
• Payroll taxes
• Retirement savings up to $61,000 in a SEP or 401k (2022 max)
• Service fees 
• Streaming services
• Subscriptions 
• Tax preparation
• Travel

What changed in your business this year? Make a summary of changes for your accountant. If possible, include amounts paid or received within the tax year. Some items to note: 

• Hired or fired people
• Added, changed, or closed locations / states of operation (people, warehouse / 3PL, inventory)
• Worked / earned income outside your home location or while working remotely
• Added a dba or another business with a unique EIN
• Paid interest on a credit card, loan, or line of credit
• Added or closed a loan or line of credit
• Purchased, refinanced, or sold physical property (building, land)
• Purchased, sold, or disposed of equipment 
• Added or closed any checking, savings, or brokerage accounts
• Traded any securities (stocks, bonds, ETFs, mutual funds) within a company-owned account

If you did any of these in your personal life, make a separate list for your overall personal filing.

Did you hire your dependent kids? If they have earned + unearned income of $12,950 or less, they can be included on your tax return. No need for a separate filing. Earned income is from doing work. Unearned is typically from interest or capital gains.

Grab their W-2s and 1099s. If they have interest-bearing or brokerage accounts in their names, you’ll need their 1098s as well. A best practice is to scan or download their documents into a cloud-based folder for each kid labeled 2022 Taxes – NAME as you receive them.

Did anything in your personal life change this year? Make a personal summary for your accountant. Some areas to note:

• Marital status
• Home address
• Kids – new additions or turning 19, 24, or 26
• Other dependents – financial support or care for relatives 
• Asset / real estate purchase or sales
• Charitable contributions

Do you have a life partner who will be filing taxes with you? Today’s your day to be a nudge. Remind them to pull their W-2s plus retirement, brokerage, and interest-bearing account statements, and current W-4 withholding. If they are expecting any exceptional income like bonuses, commissions, or profit sharing, ask them to make a summary for your accountant.

Some accountants will assume that you have an agreement about how to handle taxes within the family and simply load any shortfall owed onto your business. If this matters to you, ask part of your tax review, verify with your accountant that your partner has set up adequate W-4 withholding to cover their portion of payroll taxes. 

Have you been helping anyone else financially? Summarize how much you’ve given per individual within the year. It may be worthwhile to classify this support as a gift. You can give any person a gift of up to $16,000 in 2022 without triggering a gift tax return.

If you gave someone a personal loan this year or in the past, consider whether you’d rather forgive the loan, reclassify it as a gift, and end your role as a personal bank.

Also revisit your charitable contributions. Memberships to 501(c)3s like zoos and museums are often deductible. Benefit tickets, silent auctions, school fundraisers, and church tithes may also be areas worth noting.

What type of business support do you want from your accountant? Some things to consider:

• Advice on what’s deductible and how to track expenses 
• Management reporting that shows detailed business performance
• Quarterly check-ins to optimize cash flow and not overpay estimated taxes
• Advice on whether you should incorporate or be taxed as an S-corp
• Regular consultative check-ins and guidance on what kinds of business changes your accountant wants to know about in real time
• Referrals to trusted partners like bookkeepers, financial advisors, and insurance brokers

What kind of personal support for you the human (and your family) do you want from your accountant? Some things to consider:

• Distinct advice on your personal versus business tax situation, and how the two impact each other
• How to manage your tax bill and cost sharing with partner who’s a W-2 employee
• How to learn more about how taxes work
• How to balance programs and benefits available from a W-2 employer with what you can pay for from your company
• Suggestions for tax savings opportunities and investments

Tax prep time can be very busy. If your current accountant isn’t open to having this conversation in the context of your prep meeting, set up a time after April 15 when you can talk about your support needs.

Congratulations, you’ve completed our 10-day Tax Readiness Challenge!

If you’ve completed each day’s task, you should have a digital tax packet that includes:

• W-2s, 1099s, 1098s, and a 1095 for your business and personal 
• Your full year 2022 income statement (P&L) and year end balance sheet
• A summary of qualified business deductions not included in your financials
• A summary of 2022 changes in your business 
• Tax documents for kids’ earned and unearned income
• Tax documents and summary for your life partner
• A summary of 2022 changes in your personal life
• A list of questions you’d like to ask your accountant about supporting your business and personal goals

Have questions? Something we didn’t cover? Join our live AMA on Monday, March 6 at 11 AM PT. RSVP here.

If you can’t join live, submit your questions to hello@thejilljames.com and catch up on the replay.

Thank you for joining us on this journey! We hope you feel organized and confident going into tax time.