How to Get Your Bookkeeping in Order
Even though it could be easy to disregard it, it’s important to complete any unfinished bookkeeping before tax season. You can comply with IRS recordkeeping standards and submit a successful tax return by keeping tax-ready books.
Although Your Part Time Accountant provides a Bookkeeping Service, we are aware that some business owners prefer to handle past-due bookkeeping on their own.
Here is a step-by-step procedure you can follow to quickly get through your backlog of bookkeeping.
Step 1: Get Your Receipts Ready
Gather all of the invoices and receipts relevant to your business expenses first.
Here are the many kinds of records, invoices, and receipts to look for.
Collection of debt
Check customer accounts for any charges related to bad debt. If a customer doesn’t pay you for services finished on an accrual basis, you can deduct this as a bad debt expense. You must demonstrate to the IRS that you made a reasonable effort to collect the debt. But were unsuccessful in doing so to deduct the expense of bad debt from your tax return.
Bad debts are typically subtracted in full or in part from a business’s gross income. When calculating its taxable income. Either the specific charge-off approach or the non-accrual experience method can be used to claim bad debts.
With the particular charge-off approach, a specific bad debt that partially becomes uncollectible during the year can be written off. If you were unable to collect a bad debt, you may be eligible to deduct income from your business’s gross income. It is for tax purposes using the nonaccrual experience approach.
Gather the receipts for every purchase you made for your firm during the tax year. Additionally, you may utilize this exhaustive list of small business tax deductions. So that you can confirm that you’re keeping track of and claiming every deduction that applies to your company.
Check the balances on your vendor accounts to make sure you’ve paid everything. Ensure you have a copy of every invoice from every vendor activity. And if you don’t, ask the vendor to deliver it to you soon away. These include invoices for ongoing business operations during the closing period of your company. It guarantees that these costs will show up on your year-end financial statement.
In Step 2, Reconcile Your Bank Balances
Reconciling your bank accounts will help you find any discrepancies in your business’s or banks’ records. To confirm that the balance in each account is the same, compare each transaction on your bank statement with the corresponding transaction in your company’s accounting records. If they aren’t, look for any mistakes and correct them. This way you can make sure the balance on your bank account and the balance on your company’s records are the same.
It can be expensive to give your bookkeeper or accountant any accounts that haven’t been properly reconciled. You will be charged additional accounting costs if your accountant needs to put in more time to repair your books. As well as reconcile your accounts. You can save both yourself and your accountant time and money by reconciling your finances in advance.
Separate Personal and Professional Spending in Step Three
The best course of action is to always keep personal and professional spending separate. The practice of combining personal and business expenses in one account is known as “piercing the corporate veil,”. And it can make you personally responsible for the debt and decisions made by your company.
You risk losing the liability protection provided by your company’s structure if you run a corporation or LLC. And fail to keep your personal and professional affairs separate. You may then be held personally accountable for business losses.
When you need to pay taxes or take care of your bookkeeping, managing personal and company spending in the same account can cause unnecessary stress. It takes more time to separate personal and business expenses when they are combined in one account.
The sooner you divide your personal and work costs if you must, the better. Find out how to open a business bank account. And separate your personal and corporate finances.
Step 4: Stop Using Paper
Make your life simpler by becoming paperless at your company while you’re catching up on your bookkeeping.
Create digital copies of receipts, significant documents, and other documentation as you process your paperwork using the following tools:
- Shoeboxed organizes and scans your receipts, and when you upload them, it automatically generates cost reports.
- FileThis is a smartphone software you may use to take photos of and store receipts, statements, bills, and other papers online.
Step 5: Obtain W-9, 1099, and W-2 forms.
There’s a fair chance you’ll need to submit the following papers if you paid independent contractors or employees during the tax year.
Unaffiliated Workers: W-9 and 1099-MISC forms
A W-9 is a document that asks for the taxpayer details of a contractor. This is completed by the contractor and given back to you. The W9 data on the contractor is then used by you to issue 1099s to the IRS. Simply put, the tax form needed by the IRS to keep track of payments made to independent contractors is known as Form 1099-MISC.
Form W-2 must be submitted for each employee.
Step 6: Review Your Spending With a Tax Expert
If you’re reading this, you probably want to handle all aspects of bookkeeping and tax preparation on your own. We also hear you. It’s frequently the least expensive course of action. However, before filing your taxes, we strongly recommended that you have a qualified CPA or tax expert check your financial records, tax deductions, and any other pertinent financial data.
By doing this, you may reduce errors and guarantee that you’re taking all the tax deductions that apply to your company. It’s generally a good idea to establish a relationship with a financial expert. Before you need their assistance because tax professionals can also talk to the IRS on your behalf and represent you in the event of an audit.
Get in touch if you’d prefer to have someone else handle your backlog of bookkeeping. We can help with our bookkeeping service.