Tax season is approaching. Preparing your books shows your obedience to the IRS recordkeeping requirements, sans late fees or surprises, yielding a successful tax return.
Step 1: Gather receipts and invoices
Find all of your receipts and invoices that pertain to your business. We’ll outline which ones are the most pertinent.
- Customer Invoices
Gather all customer invoices for the tax year by reviewing your customer accounts. You’ll record these in a different way depending on whether you’re using a cash or accrual method.
- Debt Collections
Find any bad debt expenses in your customer accounts. This is the first step toward ensuring the IRS that you’re responsible in an effort to deduct the cost of bad debt from your tax return.You can claim bad debts via the specific charge-off method or the nonaccrual experience method.
- Business Expenses
Gather receipts from purchases you have made during the tax year related to your business. This helpful list of small business tax deductions will ensure you’re tracking and claiming every deduction available to your business.
- Vendor Accounts
Assess your vendor accounts to make sure they’re paid in full. Verify that you obtained a copy of every bill from each vendor activity and, if not, contact the vendor for a copy.
Sidenote: Vendor accounts include bills for business activities that are still currently operating in your business’ closing period.
Step 2: Reconcile your bank records
Reviewing your bank files ensures you don’t miss any business expenses or important records and helps you find any errors your bank may have made.
Go through each transaction from your bank statement and compare it with your company accounting records. If the transactions don’t line up, identify and fix any mistakes until they match.
Step 3: Divide personal and business expenses
You don’t want to be held responsible for piercing the corporate veil, which is keeping your personal and business expenses in the same account. Always keep your business and personal accounts separate and if you have combined them, separate them as soon as possible. Learn how to open a small business bank account and keep your finances separate.
Here’s how the IRS differentiates personal and business expenses in the event that you’re not sure what constitutes a deductible business expense.
Step 4: Make your records sustainable
If you haven’t done so already, go paperless. Generating digital records of receipts and important documents helps you process your paperwork way more easily and efficiently. Some resources that will show you how to go paperless are listed below:
Step 5: File contractor and employee forms
Hiring independent contractors and/or employees during the tax year, means you’ll need to file the following forms:Independent Contractors: Form W-9 & Form 1099-MISCYou’ll need to submit a Form W-9 and a Form 1099-MISC if you paid an independent contractor more than $600 during the year. A W-9 is sent to the contractor to complete their taxpayer information and returns it to you. The contractor’s W9 information is then used to issue a 1099 to the IRS. Check out How (and When) to File a 1099 to get further acquainted with the process and deadlines. Employees: Form W-2Filing Form W-2 is mandatory for all employees.
Step 6: Have a professional review your records
As a small business owner, doing your own bookkeeping does save money; however, a tax expert can help eliminate errors. Hiring an accountant can help you identify all the deductions you can claim for your business—which can save more money—and can also represent you should your business end up getting audited. It is recommended that you seek a financial expert prior to needing their assistance to avoid having to find one at the last-minute. This will also bring you peace of mind that your books are being maintained correctly.
CTA: If you’re a small business owner seeking more information about bookkeeping learn how Bench can bring you up to speed with their Catch Up Bookkeeping Service.
Bench gives you a professional bookkeeper at a price you can afford, and powerful financial reporting software with zero learning curve