Business and Personal Finance: Financial Statements Flow into Tax Returns

The Income Tax Impact – Financial Statements Flow into Tax Returns

The first time you look at any business tax return form, you’ll see that it resembles your financial statements, without the numbers filled in yet. That’s really all the tax return is, after all: a standard form on which to report your company’s revenues, costs, expenses, and bottom line. Some business tax returns also ask for balance sheet information; again, the form looks just like an empty balance sheet, waiting for you to fill in the blanks.

The biggest difference between your financial statements and your tax return is the layout. For tax purposes, you combine different numbers than you would for your own review or planning purposes. For example, there’s a single line for tax expenses on some business tax returns. There you would lump together payroll taxes, property taxes, and any other non-income-based taxes. On your own statement of profit and loss, though, you list those very different taxes separately. The order of items on the tax return probably won’t match your financial statements to a T, either. But every revenue, cost, and expense you’ve recorded throughout the year will show up on the tax return, in one form or another.

The same goes for tax returns that include pared-down balance sheets (for some corporations and partnerships). All of your asset, liability, and equity account balances must be included (or the report won’t balance), but not necessarily in the same way they appear on your balance sheet.

READ:  The Complete Guide to Financing and Raising Capital for Your Home Child Care Business