How do I prepare my books for tax season?
Reconcile every account through December 31. Your bank accounts, credit cards, and any payment processors like PayPal or Square need to match your accounting software exactly. Unreconciled accounts mean missing transactions, duplicate entries, or errors that will create problems on your tax return. If you’re months behind on reconciliation, start here before anything else.
Review how transactions are categorized. A purchase sitting in “Uncategorized Expenses” doesn’t help your accountant and might mean you miss a deduction. Go through the year and make sure office supplies are in office supplies, vehicle expenses are in vehicle expenses, and nothing is lumped into vague categories that hide what you actually spent money on.
Separate personal from business. If you accidentally used your business card for groceries or paid a personal bill from your business account, those transactions need to be coded as owner’s draw rather than business expenses. Your tax preparer can’t deduct your personal spending, and mixing the two raises red flags if you’re ever audited.
Gather your documents. By late January you should receive 1099s from clients who paid you over $600, interest statements from your bank, and any other tax-related forms. Keep these organized because your accountant will need them. Also collect receipts for any large purchases or expenses you want to make sure get deducted properly.
Issue 1099s to your contractors. If you paid any subcontractors, freelancers, or service providers more than $600 during the year, you’re required to send them a 1099-NEC by January 31. Missing this deadline means penalties. You’ll need their W-9 information to complete the forms, so if you don’t have that on file, start collecting it now.
Check your payroll records if you have employees. Make sure W-2s are accurate and will be issued on time. Verify that all payroll tax deposits were made and quarterly filings are complete. Payroll errors discovered during tax season are expensive to fix.
Review accounts receivable and accounts payable. Write off any receivables you know you’ll never collect. Make sure outstanding bills are recorded so your expenses are complete. Your books should reflect reality, not optimistic assumptions about what customers might pay.
Look at fixed assets. Any major equipment purchases during the year need to be recorded properly for depreciation. If you sold or disposed of equipment, that needs to be documented too. Section 179 deductions and depreciation schedules affect your tax liability significantly.
The businesses that have the smoothest tax seasons are the ones with monthly bookkeeping already in place. When your books are current and accurate all year, preparing for taxes just means a final review rather than a frantic catch-up.
If your books are a mess and tax season is approaching fast, a bookkeeper near Bentonville can help you get organized. Cleanup work before your accountant starts saves time and money on the tax preparation side, and you’ll end up with better records going forward.
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