Updated: Jul 14, 2021
There is some steps business owner can take to minimize the risk of getting your tax returns flagged by the IRS for manual processing — a procedure that can cause long delays in getting your tax refund. Before Finalizing your Tax return, Double – Checking for missing or incorrect is a very important step. If you are a small or medium business, there are 5 bookkeeping Items you need to double-check carefully for missing or Incorrect things to make sure your return is really ready to be filed.
Item 1: Are ALL Bank and Credit Card Account reconciled?
First of all, make sure all of your accounts shown in your accounting software match with your bank account and credit card statement, no transactions are leftover. Before starting with this, you must have all of the following documents:
Credit Card Statements
Previous Year’s Tax Return
Nowadays, We regularly use accounting software, such as QuickBooks Desktop or QuickBook online to manage our book more effectively. If everything is properly accounted for, the difference in your reconciliation will show zero.
Item 2: Is payroll grossed up to match what is being reported on the W -2s?
What payroll accounting system are you utilizing? Is it QuickBooks Online Payroll? Or is it a product that can without much of a stretch be incorporated with QuickBooks Online? You will need data from your payroll accounting system to complete the reconciliation. A business owner can get a risk of discrepancies by ensuring employees' wages and taxes reported to both the Internal Revenue Service, IRS, and the Gross Payroll, match.
First and foremost, let’s clarify what is the difference between Gross Pay and Net Pay:
Gross Pay (Pre-tax): is the amount of money your employees receive before any Taxes and deductions: overtime, sick and vacation leave, allowances like vehicles and uniforms, taxable group term life insurance,….
Net Pay: is the amount of money your employees receive after taxes and deductions have been taken out.
If you are using payroll accounting software that integrates with your QuickBooks Online account, then payroll amounts are likely being recorded at gross.
If the Gross Pay does not match with what being filled with the IRS, try to figure out by comparing Forms W-2 wage amounts to individual employees' gross payroll minus their tax deductions.
Item 3: Are all liability accounts (loan balances & payroll liabilities) tied out?
Before finalizing your tax return, Compare your balance sheet and loan statement to make sure liabilities have the correct balances. If there's an account with an incorrect balance, you can pull up the detail of that account to find the entries that caused the error, usually a matter of splitting out interest from principal payments. This check should be performed at least monthly.
On the other hand, payroll liabilities are any type of payment related to payroll that a business owes but has not yet paid. A payroll liability can include wages an employee earned but has not yet received, taxes withheld from employees, and other payroll-related costs.
Item 4: Are there items sitting in uncategorized expenses on the P&L statement, or uncategorized assets sitting on the balance sheet?
One of the most common problems that I see on the Profit & Loss report in QuickBooks Online are amounts in Uncategorized Income and Uncategorized Expense. As a general rule of thumb, you should avoid using vague categorization whenever possible.
If you don’t know what an expense is, find out what it is before booking it. As a business owner, it behooves you to know where your money is going; this can inform the decisions you make.
Item 5: Are there any outstanding invoices from the previous year still pending payment?
You have a lot of levers for getting paid, but sometimes none of them work. You may get stuck with an unpaid invoice. If that happens, you should write it off so your accounts reflect the lost income. That’s especially important if you’ve already paid tax on the income that was expected. The act of writing it off allows you to claim the tax back.
Irvine Bookkeeping offers a full range of bookkeeping services and promises that in 2-3 weeks, we clean up a whole book for you to prepare for tax seasons. We believe knowing your company's financial health is the key to maintaining control of your business.
If you, as a business owner, see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it.
Call Irvine Bookkeeping now for a Free Quote!