As we near the end of the year it is beneficial to start thinking about the upcoming tax season. I know it is more fun to think about and plan for the holidays. But if you take a little time and follow these 5 steps, you can make sure that tax season is less stressful, and hopefully, less expensive.
- Categorize your expenses. Categorize expenses in a way that makes sense for your business and helps you see where you are spending your money. There are general expenses that the majority of businesses incur, such as office supplies, telephone & internet expenses, bank &/or interest charges, and advertising. There may also be payroll expenses. Taking time to make sure your expenses are categorized correctly (and not over or under categorized), is essential for accurate reporting.
- Reconcile your bank & credit card accounts. Making sure that your accounts match the bank is vital to knowing where your business stands and tax preparation. Without reconciling you may miss errors, duplicate transactions, or a misread check or deposit amount. By reconciling your accounts, you can be confident in your numbers.
- Keep REALLY good records. I cannot stress enough how important it is to keep really good records. You should document everything as it occurs, not a month, or a few months or 12 months later. Take notes during conversations with your clients, vendors, and bankers. Include information on the memo lines of checks, payments, and invoices. So, when your tax preparer calls you and asks, “What was that check for in March of last year?”, you have it all documented. The best way to know if you can really take that deduction is to have good notes on what that expense was for and why.
- Save & ORGANIZE your receipts. It is important to retain quality documentation for expenditures, and the best documentation is the receipt. However, for the receipt to be used as supporting documentation for that expense, it must be clear and easy to read and have all the information necessary to justify the expense (amount paid, date, description, and vendor name). Now you ae probably thinking how am I going to file ALL those receipts? Good news, you are not required to keep the physical receipt IF you have a clear digitized copy. Most accounting software (including QuickBooks Online and QuickBooks Desktop) include the ability to upload a digital copy of the receipt and attach it to the specific transaction. What better way to keep your receipts organized? But, if you’d rather not do that or your software doesn’t have that capability, you can save a clear picture of the receipt onto your computer or cloud drive, just make sure you have them well labeled and organized for future reference.
- Review your Profit & Loss (Income) Statements. Your P&L is a useful snapshot of revenue, expenses and whether you are operating in a profit or a loss. If you have followed steps 1 & 2, and your books are current and accurate, then it can help inform better decisions. Taking time to compare month to month, quarter to quarter, and year to year can help uncover potential anomalies, omissions, and trends. And by catching these prior to tax season, you have time to correct any issues, or better plan for your tax bill.
BONUS STEP
- Schedule a Consult with your Tax Preparer. Once you have completed the first 5 steps then schedule a sit down with your tax preparer, either in person or online, to go over where your business is right now versus where you thought it would be when you last sat down for tax planning. There is no better ally during tax season than your tax preparer. And giving them a head start can only be beneficial. You may discover that you need to pay more or less in estimated taxes, or maybe you should make that equipment purchase you’ve been delaying, or possibly, year-end bonuses to your staff will be to your advantage.
If you take the remaining weeks of this year to implement these 6 steps, then you can go into the next year confident that tax season will be less stressful, and that there shouldn’t be any unpleasant surprises.
If you need help with these 5 steps or just don’t believe you can get to them before the end of the year, it may be time to consider outsourcing your bookkeeping. We offer high quality professional bookkeeping services that will help you be ready and confident at tax time. If you’d like to learn more about who we are and what we do, please contact us today.
If you’d like to get this blog and other bookkeeping news, tips & tricks monthly in your inbox, please subscribe to our newsletter.