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Do I need a balance sheet?

Calculator and Balance Sheet

Before we start with this topic, I want to make something clear. This is only information that should help you with your bookkeeping and should at no time be construed as tax advice. If you need tax advice about your specific situation, you need to consult with a CPA that specifically does taxes.

Got it? Good! Let’s proceed.

In my last blog, I described a balance sheet and how it should be used. In today’s blog, I’m going to discuss whether or not you need a balance sheet.

The short answer is, yes. Any size or type of company can benefit from keeping a balance sheet. It helps you know how much money you can expect from customers, how much debt you have, and also your overall financial picture. Only a few business types, however, require a balance sheet for tax purposes.

Let’s take a look at this based on the type of business.

Sole proprietor/Solopreneur/Single-member LLC

While maintaining a balance sheet is a good idea for tracking information for tax purposes, there is no other reason to keep a balance sheet. In fact, the Schedule C, which is the tax form you complete, doesn’t have a specific place for a balance sheet. The document would just keep some of your information in the same place to make completing the Schedule C simpler.

Partnership/LLC with 2+ people/S-Corp

If you’re a partnership, you’re only required to keep a balance sheet for taxes if meet all these criteria:

  • Total receipts more than $250,000

  • Total assets more than $1 million

  • If you do not file a Schedule K-1 with your tax return

  • The Partnership is filing and required to file a Schedule M-3.  

If you’re an S-Corporation, you must keep a balance sheet if you meet all these criteria:

  • Total receipts more than $250,000

  • Total assets more than $250,000.

Now, if you’re an LLC with two or more members, the situation is slightly less straightforward. With your business type, you are allowed to choose what way you are taxed. You get to choose either a Partnership or an S-Corp. Whichever you choose, the above thresholds would apply.

One more thought on balance sheets for these business types: if you’re planning on seeking investors or eventually becoming a C-Corp, then you should keep a balance sheet whether it’s required for your taxes or not.

C-Corporations

If your business type is a C-Corp, you are only required to file a balance sheet if your total receipts and assets are more than $250,000.

However, with this business type you are more likely to have investors (either stockholders or equity investors) so have a balance sheet is crucial. Banks will also require a balance sheet if you seek any kind of loan or investment.

Do you recognize the need to keep a balance sheet but not sure how to do it correctly? Let me help! Contact me today to have a professional accountant maintain your books so you can focus on running your business.

Wendy KaneComment