How to Prepare Your Interior Design Business for Tax Season
Original photography posted at Unsplash by Kelly Sikkema
Original article posted at Design Manager.
2020 has been a year like no other, so preparing your 2020 taxes will likely be different than in years past, too. While there remain the typical standard procedures interior designers should follow, a set of tax law modifications prompted by COVID and other implications of the CARES Act have created some changes that interior design business owners need to be aware of.
Bookkeeping Basics for Small Businesses
Do not mix personal and professional finances. As simple as that.
Reconcile your bank and credit card statements at least monthly, if not weekly. It’s much easier to rectify a mistake caught early on.
With the help of your bookkeeper, make a daily, weekly, monthly, quarterly, and annual checklist of bookkeeping duties. Daily responsibilities should include compiling expenses, filing receipts and double-checking data entry.
While you will need to work with a sales tax professional who knows the federal and state laws to develop a strategy for submitting proper filings, as a business owner you must take responsibility for overseeing implementation of that strategy.
Be sure to categorize your assets and liabilities properly – not doing so is a common accounting mistake that can dramatically impact the accuracy of a balance sheet.
Tax Prep Tips for Small Businesses During Tax Season
Denise Zollo of Zollo Accounting & Tax Services says this is the time, if you haven't already, to review your Cost of Goods Sold (COGS) Accrual, Work In Process, Vendor Deposits, and Client Deposits reports for items that need to be addressed.
All of your estimated federal and state tax payments should be organized. Priya K Srinivasan, CPA, says your accountant will be thrilled if you code your estimated tax payments in Design Manager under shareholder distribution/owner draw if they were paid out of the business bank account.
For Sales Tax, break out revenue by state if you are operating in more than one state which is easy to do using Design Manager’s sales tax reporting.
All business expenses should be accounted for, including those accidentally put on a personal credit card. These can be entered in Design Manager by debiting the respective expense and crediting the Shareholder Distribution/ Owner draw.
Tax documents received like 1099s and charitable donations made, should be available to your tax preparer.
Priya also points out that a 1099-NEC should be issued to all contractors who provided more than $600 for services and were paid by means other than credit card. This is a new form for payments to contractors. The old form 1099-MISC will still have to be used for payments to attorneys and for rent.
For wages, many states want taxes withheld if remote workers are working in their state and the business is in another state, so make sure you mention remote workers you have in other states to your tax accountant.