Imagine walking into a restaurant, ordering a gourmet meal, and then handing the chef a pile of raw ingredients, some mystery leftovers, and a crumpled receipt from 2021. That’s kind of what it’s like when you give your tax professional unorganized books. Sure, they can still whip something up, but it’ll take longer, cost more, and they might give you the look (you know the one). So, before you pass off your books, let’s walk through five steps that can help you clean up your documents and make tax season a breeze — for you and your tax pro.
Step 1: Reconcile all accounts
The first thing you need to do is ensure that all your bank accounts, credit cards and loan statements are reconciled with your bookkeeping records. This involves matching your recorded transactions with your bank statement to ensure that they are accurate.
Step 2: Categorize all transactions
Once your accounts are reconciled, you must review your books to ensure that every transaction is properly categorized. Some categories that may apply to your business include office supplies, payroll and utilities. If you find any uncategorized or ambiguous entries, now is the time to clarify them.
Step 3: Gather and organize supporting documents
Next, you will need to collect all receipts, invoices and records for your income and expenses. When collecting these documents, ensure that all digital and physical records are neatly organized just in case your tax preparer needs to verify any numbers. To learn more about the specific documents needed for tax season, read our previous blog post!
Step 4: Review financial statements
It is now time to generate all of your key financial reports such as your profit and loss statement, balance sheet and cash flow statement. A great way to make these documents easily accessible is to use accounting software such as QuickBooks or Xero. Once you have collected statements, verify that they are accurate and ensure that they match your books.
Step 5: Flag unusual or complex transactions
The final step is to identify any large, unusual or complex transactions. This includes irregularities in asset sales, capital investment or loans. Provide clear explanations or supporting documents for these transactions for your tax professional.
At the end of the day, the key to tax preparation is planning. By sticking to this five-step process, you can have your documents organized and ready for your tax professional. That said, we get that as a business owner you may not have the time to commit to your tax prep. Sometimes having that extra help from a professional can ease the stress that comes along with tax season. That’s where our team comes in! Here at STEPS, we offer small business bookkeeping services and can help make sure that your documents are correct, compliant and ready to send off to your tax professional. To learn more about how we can support you, follow the link to our bookkeeping services or send us a message on our contact page.
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