5 bookkeeping things to do before you file your taxes
Our busiest season of the year is, hands-down, January. This is the time where business owners are taking a hard look at their bookkeeping. January is also the month that kicks off tax season for bookkeepers and CPAs.
After ringing in New Year's, we dive right into year-end and file our clients' 1099s. These forms are 1 of the things you must consider for your bookkeeping as you get ready for tax time.
Getting started on wrapping up your bookkeeping early has its benefits, for sure. You don't have to start as early as December of the same year. Enjoy your holidays!
But you want to have your documents ready to start strongly in January. First, you'll make sure that you reconcile your bank and credit card statements—aka double-check that the transactions and balances are accurate. Once you know the data is accurate, you've got some good stuff to work with.
And starting your year-end bookkeeping tasks early is a brilliant decision. It means that you’ve got time to dig in, verify the data, ask questions, and hire help if needed.
Waiting until March or April is going to put you in a tight spot and you’ll likely face filing an extension on your taxes. If that’s not what you had in mind, make the time to get started in January.
Here are 5 bookkeeping things you must do to be ready to file your taxes this year:
1) First, round up your bank and credit card statements. Make sure you’ve reconciled all 12 months, and each reconciliation agrees with the statement's ending balance. You'll also reconcile payment processing accounts, such as PayPal and Stripe.
2) Next, look at your Profit & Loss for the entire year. Do the numbers make sense? Is revenue too high, too low? Pay attention to these especially since you pay taxes on the money you earn. You don't want revenue overstated. This happens often in bookkeeping files that aren't managed throughout the year.
3) Then look at your Balance Sheet for the entire year. Are account balances accurate? Fixed Assets captured? Any loans taken out on the books? This info flows straight to your tax return, so review the balances carefully.
4) Next up, file 1099s for vendors you’ve $600 or more to for services rendered. EXCEPT if you paid them by credit card or PayPal. A 1099 is not a need if the vendor’s business classifies as a C corporation or S corporation. Their W-9 will tell you their classification.
5) Finally, if you earned a significant profit last year (around $60K or higher) and you’re a sole proprietor, consider forming an S-corp. The tax advantages of filing an S-corp classification for most businesses is great. We recommend working with a CPA when considering this next step for your business.
The more prepared you are, the easier tax time is.
If you’re not using a software like QuickBooks Online for your bookkeeping, the new year is the perfect time to start. It's an easy step to take your business to the next level.
Each year, we’re working hard to make sure our clients get taxes out of their way fast. If you’re needing help to knock this annual to-do item off your list, reach out today.