How to Get Your Bookkeeping in Check
As enticing as it is to put it off, it is worthwhile to catch up on outstanding bookkeeping far before tax season arrives. Putting together tax-ready books can assist you in meeting IRS recordkeeping standards and filing an accurate tax return.
Although we provide a catch-up bookkeeping solution, we understand that certain company owners opt to handle late bookkeeping on their own.
Below is a step-by-step guide to clearing out your bookkeeping queue in no time.
Step 1: Collect all of your receipts.
Initially, gather any official receipts relating to your company expenses.
Here are the various sorts of invoices, receipts, and documentation to search for.
Invoices from customers
Examine your client accounts to make sure you’ve obtained all the financial documents for the tax period. If your company uses cash-based accounting, you simply need to submit an invoice to the client after they have purchased something. If your company employs accrual accounting, you declare the value in your books the instant the transaction occurs, even if you haven’t yet acquired the money. Assume you sold a $1,000 item in October 2020 but weren’t paid until February 2021. On a cash basis, a profit was recorded in February. If you realize it immediately in October, if you use the accrual basis.
Collection of debts
Examine each client’s account for any bad loans expenditures. If a consumer does not pay you for completion of the project on an accrual basis, you can write it off as a credit losses expenditure. To exclude the expense of bad debt off your tax return, you must show the IRS that you took reasonable attempts to recover the debt but were unsuccessful to collect money.
In most cases, bad debts are excluded in part or entirely from a company’s gross income for calculating its tax liability. Bad debts can be collected via the particular charge-off approach or the non-accrual experience approach.
You can eliminate an individual bad debt that becomes partially unrecoverable throughout the year by using the specific charge-off approach. If you use the nonaccrual experience approach, you can deduct money from your firm’s gross income for tax purposes if you were unsuccessful in reclaiming a bad debt.
Expenditures for business
Gather receipts for any business purchases made throughout the tax year. You can also use this complete list of small business tax deductions to double-check that you’re documenting and claiming every possible deduction for your company.
Accounts for suppliers
Check your supplier accounts to make sure you’ve settled them everything in total. Make absolutely sure you have a document of every invoice from each supplier activity, and if you don’t, call the supplier straight once and request one. These comprise bills for company operations that are still ongoing throughout your company’s closure period in order for these charges to reflect on your year-end financial report.
Step 2: Clean up and Reconcile your bank accounts.
It is critical to balance your accounts in order to detect any inaccuracies in your business or financial documents. To check that the balance of an individual account is the same, check each activity on your financial statements against the identical transaction in your business accounting records. If they seem to be, look for and correct any mistakes so that the balance on your financial statements reflects the balance in your company’s documents.
It might be expensive to turn over unreconciled finances to your bookkeeper or accountant. Accounting costs will be incurred if your auditor has to undertake additional work to balance your finances and repair your records. By balancing your accounts ahead of time, you save time and financial costs for both your accountant and your company.
Step 3: Distinguish between personal and business expenses.
We always urge our clients to take their personal and professional costs separately. Putting your individual and commercial spending in the same account is referred to as “piercing the corporate veil,” and it may lead to you being held legally accountable for your company’s debts and operations.
If you run a corporation or an LLC and fail to keep your business and personal activities separate, you may lose the liability protection offered by your company’s framework and may become legally responsible and liable for company losses.
Handling personal and company spending in the same account might cause an unneeded burden when it comes time to submit taxes or perform bookkeeping; it requires more work to wade through individual and commercial expenditures when they’re jumbled together in your same account.
If you really need to split your company and personal costs, do so as quickly as possible. Learn how to start a micro company bank account and divide your funds.
If you’re not sure if a transaction counts as a deductible company expense, discover how the IRS distinguishes between individual and company expenses.
Step 4: Reduce or eliminate the use of paper.
As you’re collecting out on your accounting, make things easier by going paperless in your firm.
Make digital recordings of invoices, essential papers, and other documentation as you manage your paperwork using the following tools:
Shoeboxed – analyzes and arranges your records and generates financial documents immediately from your submissions.
FileThis – is a smartphone application that allows you to snap and upload receipts, records, invoices, and other documentation to the cloud.
ScanSnap Scanner by Evernote – instantly transfers and archives all scanned papers to Evernote.
Step 5: Gather your W-9s, 1099s, and W-2s.
If you hired independent contractors and/or personnel during the tax year, you may be required to file the following documents:
Form W-9 & Form 1099-MISC for Independent Contractors
Did you hire an independent contractor for more than $600 for work performed during the fiscal year? If this is the case, you must prepare and present the following documents: a Form W-9 and a Form 1099-MISC.
A W-9 is a document that demands taxpayer data from a contractor. This is completed by the contractor and returned to you. You then provide a 1099 to the IRS depending on the data on the contractor’s W9. Generally speaking, the 1099-MISC is the tax form required by the IRS to monitor payments to independent contractors.
Collecting W-9s and completing 1099s require a significant amount of preparation. If you’re inexperienced to the procedure and aren’t sure about the requirements, read How (and When) to File a 1099 for advice on how to make it as simple as possible.
Form W-2 for personnel
Form W-2 must be filed for all employees.
Step 6: Have your spending reviewed by a tax specialist.
If you’re reading this, you probably want to do things independently when it pertains to bookkeeping and tax filing. And we understand. It’s frequently the most cost-effective option. However, before you submit your taxes, we highly suggest that you have a competent CPA or tax professional evaluate your records, write-offs, and any other financial documents significant to your tax filing.
This helps to avoid mistakes and ensures that you are obtaining all of the appropriate deductions for your organization. Tax specialists may also talk with the IRS on your behalf and represent you in the eventuality of an audit, so it’s typically a good idea to establish a connection with a finance expert well before you need their assistance.
Get in touch if you’d rather have somebody else handle your stack of bookkeeping. Our Catch Up Bookkeeping Service can support you.
What we can offer you?
We are a human-powered online bookkeeping service. We can provide you with a professional bookkeeper who is backed up by a network of skilled small company experts. We’re here to take the uncertainty out of managing your own business once and for all. Every month, your bookkeeping crew integrates financial records, classifies transactions, and creates accounting records. Begin with a free month’s trial of bookkeeping.