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Getting Your Books Ready for Tax Time

Jessica Mishra

Tax time may not be everyone’s favorite time of year, but if you are prepared ahead of time it may not be so bad. I want to share a few things you might want to take care of before filing taxes (as it pertains to your business). If you feel prepared with these items before your tax accountant asks for them you will feel a lot of relief. This post will deal exclusively with getting your business books ready.

A few things for your to-do list if not already done:

Are all transactions recorded in your books?

If you are using a bookkeeping software like Quickbooks Online, this may be as simple as going to your bank feed and making sure all transactions (expenses, income, distributions, etc.) have been categorized appropriately. If you see items sitting in your bank feed that have not been categorized then you have some homework (read: pull up a glass of wine and do this in front of the tv). This is definitely the first step in finalizing your books.

Also, if there are any additional transactions that may not be feeding into your software, you need to get those added as well. For example, you may have paid for a couple of business expenses using personal funds. Hopefully you have a record of these and can get them added. If you are not familiar with the process for adding outside expenses please check in with your bookkeeper or accountant for help. The first step would be to get a comprehensive list of these expenses together. Include info on who the expense was paid to, type, and date. The same thing pertains to any income that may have been deposited into a personal account.

If you are not yet using bookkeeping software then you will need to get all of your expenses by type together as well as income organized for the year. You can prepare a simple spreadsheet with a tab for income listed by each deposit and a tab for expenses. Then a summary tab which shows income minus expenses (your profit). Include as much detail as you can especially the type of income or expense, date, who it was received from or paid to, and amount.

Are all accounts reconciled?

Once all of your transactions have been entered in you want to reconcile all business accounts. If you are using bookkeeping software there should be a function that allows you to do this. In QuickBooks Online you simply go up to the gear icon and then click on reconcile. There is much more on this in my course: Primed for Action with QuickBooks Online if you need support. This is definitely a process you want to keep up with. It ensures that all bank data has made it into your bookkeeping software and helps to resolve issues.

Remember that you will need to reconcile ALL accounts : bank accounts, savings accounts, lines of credit, and credit cards that pertain to the business.

Do you need to make any year-end adjustments?

This may be something that your bookkeeper or accountant takes care of for you or at least talks over with you, but I want to give you a few things to think about. If you are selling product as part of your business you will most likely want to do a year-end physical inventory count. This is especially important for small businesses as this is typically the time when Cost of Goods Sold is recorded and inventory numbers are adjusted. You will basically do the inventory count, apply a cost to each item counted, and give that info to your accountant or bookkeeper to record in the books.

Another common adjustment is for Bad Debt. If you have invoices that you know will not be paid, those need to be removed from your books. Let your accountant know what invoices will not be paid so they can record an adjustment.

If you are not a Corporation you may be able to take a home office deduction. There are rules around when you qualify for this deduction that I will not get into here, but if you think you might qualify talk to your accountant. You will then need to get together a list of either rent or mortgage payments, utilities, expenses that pertain to your office like repairs or cleaning costs, insurance, etc. You will also need to know the square footage of both your office and your entire home. This will help your accountant calculate your deduction.

Another common deduction is depreciation. Your tax accountant will calculate this for you, but you want to make sure you have any assets recorded in your books (or at least have a list). These are typically items over $2500 in cost that will be used over a period longer than a year. Examples might be large furniture, equipment or computers. Make sure to provide these items to your accountant so they can calculate your depreciation expense.

Gather 1099s

If you were provided with 1099s for the services you offered, make sure to gather those together to provide to your tax accountant. The deadline to receive these was January 31 so if you think you were supposed to receive one but did not get it yet, follow up with the issuer.

Do a final review of your reports

This step is important. I always recommend that my clients do a thorough review of their Profit & Loss Report as well as Balance Sheet. Even if you have a bookkeeper, you need to look at these reports closely. You are the most in touch with your business which makes you the best one to do the final review to make sure everything looks good.

These reports should be easy to run using your bookkeeping software once the above steps have been done. Make sure you run the report for the whole year (check the date range) and use the appropriate method of accounting (QB has you select cash or accrual - if you don’t know which method you use ask your accountant, but many of you will be cash unless told otherwise).

In a software like QuickBooks Online, you should be able to click on each number to see the detail that makes up the amount. That way you can investigate anything that looks unusual to you. I always recommend that you review total income and total expenses in detail at the end of the year. There are a couple of modules in my course, Primed for Action with QuickBooks Online, that will help you know what to look at when reviewing your reports. This is a great best practice to have monthly, but definitely important at year-end.

Following these steps will help you to be much more prepared for tax time. If tax time is very stressful for you, it could be a good idea to get a little support with your ongoing bookkeeping (either some training or outsource this function). Please reach out if we can help!