7 Bookkeeping Tips for Becoming Tax-Ready
When I worked for a CPA, more often than not, tax time looked like someone walking in with a folder (and sometimes a bucket) full of mystery receipts and saying,
“Here you go! Can I have this done by Friday?”
Overwhelmingly, I wanted to tell the client, “This is impossible!” on behalf of my boss, but because accountants actually care a lot more than you think, they will almost always say yes. They will spend extra time at night and on the weekends, missing important events if needed just to finish the work because everything came in so close to a deadline.
So…
🙃 Do your CPA (or tax accountant) a favor. If you don’t already have a bookkeeper, make sure you have done the following:
Go through transactions and ensure they’re categorized correctly.
The nice thing about automation today is that, if your bank is connected to your bookkeeping stack, you should have the ability to pull in transactions and approve the auto-matched reconciliations. However, this isn’t fool-proof. Do your due diligence and make sure the transactions make sense.
The easiest way to start is by reviewing your balance in each account. If you have a random $5000 charge in marketing when you know you didn’t spend that much, dig into it then set it up to automatically categorize that transaction correctly in the future.
Clear all suspense accounts: Uncategorized Income, Uncategorized Expense, Ask My Accountant, Undeposited Funds — these should all be zero.
This should be able to be completed by categorizing these transactions correctly. This should not require a journal entry.
Reconcile bank and credit card accounts to avoid duplicates.
This is best completed as the months go on. If banks and credit cards are regularly reconciled, you don’t have to do it all at once. It sounds easier than it is, especially if 1 transaction is off and it’s all the way at the beginning of the year. 😒
Review owner contributions and draws — these should not be expensed or coded as income.
When you, as the business owner, spend your own money on the business, it needs to be categorized as Owner Contributions. This money is not income because it did not come from a revenue source.
When you use money from the company for something not business related, it should never be anywhere else except Owner’s Draws.
At tax time, this could save you from having over or under inflated numbers. Then if an audit should happen, nothing fishy is going on here. 🥳
Ensure large assets and loans are on the books correctly and bring documentation for your CPA.
Large assets and loans are tracked and deducted specific to their perceived life. However, there’s also special deductions, especially start-up costs, that mean you need to be extra careful and give EVERYTHING to your accountant or you’re definitely leaving money on the table.
Run your Profit & Loss and confirm the numbers make sense.
You know roughly how much you made or lost. Does your P&L make sense?
Run your Balance Sheet: Assets = Liabilities + Equity. If it doesn’t balance, something is off.
This is simple math: 500 = 210 + 290. Our Assets always equal our liabilities + equity. If they don’t match, something is incorrect and needs to be looked into.
If this seems overwhelming to you
My diagnostic is exactly what you need! I will prepare a Diagnostic Review Report for you to take with you. You will receive:
A written summary of what needs to be corrected
A clear project quote
A prioritized action plan
No mess, no confusion, just clean!
