13 checkpoints that sole proprietors should keep in mind before filing their tax returns

The tax filing season has passed, but it will eventually come again. Do you always forget something even though you repeat the same thing every year? So, here are 13 checkpoints that you should keep in mind before filing your tax return.

Keeping these in mind will not only ensure a smooth filing process, but also prevent mistakes and errors. If possible, check them monthly so you can process your tax return without being rushed at tax filing time. So, let's get started!

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13 simple checkpoints

Among the 13 general checkpoints to keep in mind before filing a tax return is an easy place to start. These include cash deposits, sales, accounts receivable, accounts payable, deposits, loans, housekeeping, private expenditures, fixed asset handling, depreciation methods, inventories, deductions, and document retention. By reviewing these items, you can check for errors when filing your tax return and prepare for an examination by the tax inspector.

We will look at this in detail.

Are the cash deposit balances correct?

One of the most important items to check before filing a tax return is the balance of cash deposits. Checking that the balance in your bank account matches the amount in your cash book will help ensure the accuracy of your income statement and balance sheet. It is also important to prepare for a tax audit by entering the December 31st balance in the passbook. If you check the balances in your daily operations, there should be no discrepancies. However, if you fail to check the balances, the tax office may request a change in your tax return and you may be forced to make corrections. It is necessary to be aware of the importance of checking balances carefully before filing a tax return.

Are sales correct or unaccounted for?

Sales are one of the most likely items to be pointed out during a tax audit for errors in recording sales around the end of the period. Therefore, it is very important to verify that sales are properly recorded prior to filing the tax return. First, a trial balance before closing is prepared, and any outstanding journal entries are checked and corrected.

In particular, check to see if there are any payments received on margin transactions that should have been received but were not recorded. It is also important to check for any discrepancies between invoiced amounts and received amounts. Such errors can result in over- or under-reporting of sales, which can be a major problem on your tax return.

Are the uncollected accounts receivable correct?

Special attention should be paid to this checkpoint to ensure that uncollected accounts receivable are correct. Accounts receivable are like a "bill" that has not yet been received for goods or services, and if they remain uncollected, the company may find itself short of funds for operations. Therefore, accountants need to properly manage accounts receivable and check for uncollectible status. If there are uncollected accounts, consideration should be given to improving tracking and collection methods. In addition, if there are uncollected accounts receivable, they must be handled properly as they may affect tax reporting and financial statements. Be sure to review your accounts receivable uncollections carefully before filing your tax return to ensure that they are correct.

Is the accounts payable outstanding correct?

Check to see if the accounts payable period is correct. Accounts payable represents the obligation to pay for purchased raw materials or goods after the payment due date has passed. Therefore, it is important to check the payment due dates and ensure that any past due payables are identified. Any unpaid obligations may affect the current cash flow. In addition to this, the reason for the unpaid debt and any adjustments that need to be made to the payment schedule should be addressed promptly.

Failure to identify outstanding debts prior to filing a tax return can lead to difficulties in making future payments.

Do the deposit details and balances match?

You should verify that the deposit details and balances match. Deposits are accounts used to temporarily hold money received in the business. The statement and balance of this account is an integral part of your business activities. Before filing your tax return, you should verify that the statement and balance of your deposits are accurate and correct.

One of the most common mistakes is mixing up social insurance premiums, labor insurance premiums, and income tax withholdings. If the statements and balances do not match, the cause should be identified and corrected. Care should be taken in managing deposits.

Are the loan repayments and balances in line?

When a sole proprietor files a tax return regarding the repayment of debt, it may be counted as a necessary expense. However, in order to determine the amount of income tax in a tax return or year-end adjustment, the tax office must confirm the outstanding balance of the debt. For this purpose, documents proving the balance of the loan as of the end of the year are required. It is also important to consider the monthly repayment amount including the interest to be paid. Interest is calculated by multiplying the outstanding loan balance by the interest rate and dividing by the number of days borrowed. One of the most important points to understand before filing a tax return is whether the loan repayment and balance are in line with the loan balance.

Is the housekeeping plan in place?

Household security is a household expense that a sole proprietor or freelancer may incur if he/she uses some of the office and equipment in his/her home for business purposes. One of the most important checkpoints to keep in mind before filing your tax return is to make sure that you have a household expense allowance.

Taxes can be saved by properly separating the time and area used for business and private purposes and recording household expenses as a business expense. However, it is important to calculate and file your tax return in the correct manner, as improper housekeeping expenses will be scrutinized by the tax office. Make sure that you have properly accounted for your household expenses and correct any errors so that your tax return will go smoothly.

Are you using private expenditures as a business expense?

The next item to check is whether private expenditures are being charged as business expenses. One way for a sole proprietor to increase his or her own profits is to write off private expenditures as business expenses.

However, the tax office does not recognize such accounting and takes strict action against false claims due to overstatement of expenses. Therefore, you should pay close attention to ensure that private expenditures are not included in business expenses.

Is the handling of fixed assets correct?

Regarding the correct handling of fixed assets, it is important to verify that depreciation is correctly accounted for in the accounting. In the event of a tax audit, the tax office will also check whether the fixed asset control ledger has been filled out correctly. It is important to note that the recording method differs between tax-included and tax-excluded accounting.

In addition, having the correct information on newly recorded portions, dispositions, and other processes will help you manage your business. Let's remember to check the information on fixed assets to make sure it is accurate and to avoid risks.

Is the depreciation method correct?

Calculating depreciation is a necessary part of owning fixed assets, regardless of whether you file a blue or white tax return. Incorrect depreciation methods can result in incorrect calculations of asset values and cause accounting problems. Therefore, it is important to have the correct knowledge to perform the calculation. Care should be taken to understand the items required to calculate depreciation and to ensure that the calculations are accurate. This will ensure that the accounting process runs smoothly. It is also important to have the correct depreciation method in order to record depreciation as an expense.

Are inventories accurately recorded?

Inventories are one of the items that are heavily scrutinized during tax audits and affect cost of sales. They include cash, inventory, supplies, gift certificates and other discount coupons, gift certificates, accounts receivable, and advance payments. Note that transactions that cross over accounting periods are subject to particularly strict scrutiny. In day-to-day operations, it is important to accurately reflect inventories in asset calculations. In order to ensure accurate recording, inventories should be taken out and inspected according to the checkpoints in advance. This will not only prepare you for tax audits, but also allow you to make appropriate business decisions in your business operations.

Deductions: Deduction for medical expenses, hometown tax payment, omission of deduction for life insurance premiums

Among the checkpoints to keep in mind before filing tax returns, the last one mentioned is "deductions: deductions for medical expenses, Furusato (hometown) tax payment, and missing deductions for life insurance premiums. On a tax return, tax payments can be reduced by taking deductions. Among them, the deduction for medical expenses allows you to deduct a portion of medical expenses paid at hospitals and pharmacies. Furusato (hometown) taxation is a system that allows taxpayers to make donations to local governments and deduct them from national taxes. In addition, a deduction for life insurance premiums can be claimed for life insurance premiums paid.

However, these deductions are sometimes forgotten and omitted from the tax return. It is important to report these deductions without omission to ensure that you file your tax return. In addition, filing correctly can reduce the amount of tax you pay, which can lead to cost savings.

Are materials being properly preserved?

Before filing the tax return, it is also necessary to check that the materials are properly preserved. Withholding tax records are required to be kept for seven years, and if you have a tax advisor, a meeting with him or her in advance will help you confirm that the necessary materials have not been omitted. In addition, attention should be paid to the Electronic Bookkeeping Law. Refer to the "Electronic Bookkeeping Law Question and Answer" posted on the National Tax Agency's website or rely on your tax advisor for a proper understanding of preservation. Taxpayers should be aware that the National Tax Administration or the tax office may conduct an investigation based on the materials preserved by the taxpayer. In filing tax returns, taxpayers are required to pay sufficient attention to the preservation of documents in order to provide accurate information.

Be aware of tax returns in preparation for examination by tax inspectors

Confirmation points will help you be aware of your tax return in preparation for an investigation by the tax inspector. Assuming that "I won't be audited" can lead to an unexpected entry.

Tax audits by the tax office or the National Tax Administration are conducted to ensure that taxpayers are paying their taxes properly. However, you can respond to a tax audit by preparing in advance and filing your tax return accurately. For example, properly organizing all necessary materials and documents and using the 13 checkpoints to review your business before filing your tax return are important ways to prepare for a tax audit by a tax inspector.

Be aware of this on a daily basis.

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