Preparing for Tax Season Starts Today

Tax season is easier when good bookkeeping happens all year long.

For many small-business owners, tax preparation feels like something that happens once a year. But the quality of the information available at tax time is largely determined by what happened during the other eleven months.

Current books, reconciled accounts, organized documents, and resolved questions make year-end much easier. Waiting until tax season to sort through an entire year of activity can turn routine bookkeeping into a major cleanup project.

Tax Preparation Begins With Current Books

Your tax professional relies on the financial records produced by your business throughout the year. Those records are much more useful when transactions have been reviewed while they are still familiar.

Keeping your books current makes it easier to identify what a transaction was for, locate supporting documents, correct mistakes, and answer questions before months have passed.

Accurate tax preparation starts with organized underlying records.

Reconcile Throughout the Year

Reconciliation is one of the most important checks in the bookkeeping process. It compares the transactions recorded in your accounting system with the activity shown on your bank or credit-card statement.

Regular reconciliation can uncover missing transactions, duplicates, incorrect amounts, bank-feed errors, fees, interest, and activity recorded in the wrong account.

Reconciling one month at a time is usually manageable. Trying to reconcile an entire year just before tax preparation can be considerably more difficult.

Keep Supporting Documents Organized

Good bookkeeping requires more than a list of transactions.

Receipts, vendor invoices, customer invoices, loan documents, equipment purchases, payroll reports, sales-tax records, and other supporting documents help explain what happened behind the numbers.

A simple system works well when it is used consistently. Capture documents while they are easy to identify, use clear file names, separate business and personal records, and review missing documentation periodically instead of waiting until year-end.

Pay Attention to Contractors and Information Returns

If your business works with independent contractors or other vendors who may be subject to information-reporting requirements, waiting until January to collect missing information can create unnecessary problems.

Good year-round habits include requesting appropriate vendor information when the relationship begins, keeping records current, reviewing contractor payments periodically, and resolving missing information before year-end.

Your tax professional can advise you about the specific filing requirements that apply to your business.

Track Loans, Assets, and Owner Activity Carefully

Not every business transaction belongs on the Profit & Loss Statement.

Business loans, lines of credit, equipment purchases, vehicles, asset sales, owner contributions, draws, distributions, and business expenses paid personally can affect other areas of the financial statements.

These transactions are easier to handle correctly when supporting information is available and questions are addressed when the activity occurs.

Waiting until year-end often means trying to reconstruct important details months later.

Review Your Financial Reports Before Year-End

The first time you carefully review your Profit & Loss Statement and Balance Sheet should not be when you are preparing information for your tax professional.

Periodic review gives you time to identify balances or activity that deserve attention.

Watch for unusually large or negative balances, uncategorized transactions, unresolved clearing accounts, unexpected changes in income or expenses, loan balances that do not appear reasonable, and accounts that should have cleared but continue to carry a balance.

Finding an issue during the year gives you more time to investigate it.

Do Not Ignore Tax Notices or Correspondence

Federal, state, and local tax correspondence should be reviewed promptly rather than placed in a folder to deal with later.

Keep copies of notices and payment confirmations, pay attention to stated deadlines, and provide relevant correspondence to the appropriate tax professional when necessary.

Good recordkeeping includes knowing where these documents are when they are needed.

Make Year-End a Review, Not a Reconstruction

Year-end should be a review of books that have already been maintained—not an attempt to reconstruct an entire year from scratch.

Consistent bookkeeping throughout the year reduces last-minute searches for documents, unanswered transaction questions, large cleanup projects, and delays in getting information to your tax professional.

A Simple Year-Round Routine

The exact process will vary from one business to another, but a dependable routine generally includes:

Keeping transactions current
Reconciling bank and credit-card accounts
Reviewing unpaid invoices and bills
Organizing supporting documents
Investigating unusual transactions
Reviewing key financial reports
Resolving open bookkeeping questions
Keeping tax and compliance records organized

None of these tasks is especially dramatic on its own. Their value comes from doing them consistently.

Your Bookkeeper and Tax Professional Have Different Roles

Bookkeeping and tax preparation work together, but they are not the same service.

A bookkeeper helps maintain organized and accurate financial records throughout the year. A tax professional uses those records, together with other tax information, to prepare returns and provide tax-specific guidance.

When the bookkeeping is current and reliable, the tax professional can begin with better information—and the business owner spends less time trying to reconstruct what happened.

Tax Season Is Easier When the Books Are Ready Before It Arrives

Good tax-season preparation is really the result of good habits throughout the year.

High Plains Bookkeeping helps small-business owners maintain organized, current financial records so year-end is easier to manage and the numbers are more useful throughout the year.

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