Updated: May 20, 2020
If you’re one of the many small business owners who hasn’t done his or her bookkeeping all year long, this tax season will unfortunately be a stressful time. To help you through this period, here are some items for your bookkeeping checklist before you turn your books over to your tax preparer:
1. File extension
Give yourself enough time to compile your financial documents in order before you throw them to your tax preparer. If you have no idea how long this process will take, you can file for an extension, giving yourself an extra six months to file. You don’t need to wait until tax day to file, either.
However, don’t think that a tax extension lets you off the hook for paying taxes on time. You are still required to make a tax payment by Tax Day. Keep in mind that you will also need to calculate potential taxes due and send that along with your extension request.
But if your income has increased over what you estimated during the year or your expenses are lower than anticipated, you will need to pay the amount owed or be subject to penalties and interest when you finally do pay your taxes. It’s possible to file your return anyway and then amend it later, but in most cases, it’s better to take a step back and make sure you file right the first time.
As long as you pay your tax bill, filing later allows you to be more thorough. It’s certainly better than accruing interest and penalties.
2. Gather and Organize Your Financial Records
Compile documentation for all your purchases, business expenses, income and records of transactions, pulling all your receipts, bank statements, cancelled checks and paid bills. From payroll to expenses, gather your financial records and organize them.
After you have collated your financial statements, sort and categorize each business expense into different buckets, such as auto expenses, home-office expenses, utilities, medical expenses, office supplies and charitable contributions. That way the tax preparer can easily access the right numbers, feed them into a spreadsheet and run calculations to figure out deductions you may be eligible for.
If you’re a small business owner who has a tendency to put some expenses on personal credit cards, that documentation also needs to be gathered to ensure all business costs are captured. It might take time to track down some of your records, which is why filing for an extension makes sense.
3. Make sure all income is documented
Tracking income is the area where small business owners can really get into trouble. Once you organize your receipts and other financial information, review them so that you can identify credits and deductions you might be missing. Accounting software can help you maintain your books, stay organized and keep you prepared for tax season, or you can consult with a tax professional for insight on what you might be eligible for.
If you don’t have time to do a little bookkeeping each day, filing for an extension allows you to identify more tax breaks and then file your complete return without the need to amend your return, which can be a tedious process.
4. Prepare Better Bookkeeping for the Future
After Tax Day is finally in the rear-view mirror and you've filed your return, sit down and try to identify a better way of maintaining your financial records, not just during tax season but all year round, so that you’re not in this same situation again next year.
Once you have caught up on your bookkeeping for last year, put systems in place that allow you to keep better books in the future. Most importantly, set up a filing system for your receipts. This can be a hard-copy system or a system for scanning and organizing digital copies. Immediately filing your information and sorting as you go saves time and energy in the long run. Different people have different systems. What matters the most is that you have a system and use it daily, whether you hire a professional bookkeeper or do it yourself.
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Call Irvine Bookkeeping today if you have any questions regarding statement of cashflows. You reach us at 949-545-9980 or visit us at www.irvinebookkeeping.com