How To Get Your Bookkeeping In Order
Last updated on Jul 24, 2021
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Getting your bookkeeping in order As tempting as it is to put it off, it is worthwhile to catch up on overdue bookkeeping long before tax season arrives. Having tax-ready books can assist you in meeting IRS recordkeeping standards and filing an accurate tax return.
Although Bench provides a Catch-Up Bookkeeping Service, we understand that some company owners prefer to handle overdue bookkeeping independently.
Here's a step-by-step guide to clearing up your bookkeeping backlog in no time.
1.Gather All Of Your Receipts
First, gather any receipts and invoices relevant to your business expenses. Here are the many sorts of receipts, invoices, and records to search.
Invoices from customers
Examine your client accounts to confirm that all customer bills for the tax year have been collected. If your company uses cash-based accounting, you only need to send the customer an invoice once they have paid.
If your company utilizes accrual accounting, you record the amount in your books the minute the sale occurs, even if you haven't yet received the cash.
Assume you sold a $1,000 item in October 2014 but were not paid until February 2015. Revenue is recorded on a cash basis in February. Under accrual accounting, you recognize it immediately in October.
Collection Of Debts
Examine each customer's account for any bad debt costs. If a customer does not pay you for services performed on an accrual basis, you can write it off as an insufficient debt charge. To deduct the expense of bad debt from your tax return, you must show the IRS that you took reasonable measures to collect the debt but could not recover the amount.
Bad debts are often deducted in part or entirely from a business's gross revenue for calculating taxable income. Bad debts can be claimed using the particular charge-off technique or the nonaccrual experience approach.
You can deduct a specific lousy debt that becomes partially uncollectible over the year using the specific charge-off technique. If you use the nonaccrual experience approach, you can remove revenue from your firm's gross income for tax purposes if you cannot collect a bad debt.
Expenses for Business
Gather receipts for any business purchases you made throughout the tax year. You may also use this complete list of small business tax deductions to double-check that you're documenting and claiming every possible conclusion for your company.
Accounts For Vendors
Check your vendor accounts to make sure you've paid them all in full. Make sure you have a copy of every bill from each vendor activity, and if you don't, call the vendor immediately and request one. These include invoices for business operations ongoing throughout your company's closure period for these costs to reflect on your year-end financial statement.
2 Reconcile Your Bank Accounts
It is critical to reconcile your bank accounts to discover any mistakes in your company's or bank's records. To confirm that the balance of each performance is the same, compare each transaction on your bank statement to the identical transaction in your company accounting records. If they aren't, look for and correct any inaccuracies so that the balance on your bank statement matches the balance on your company's records.
It might be expensive to provide your bookkeeper or accountant with accounts that have not been adequately reconciled. Accounting costs will be levied if your accountant has to conduct extra work to balance your budgets and correct your records. By reconciling your accounts ahead of time, you save time and money for your accountant and yourself.
3 Distinguish Between Personal And Business Costs.
Our clients are constantly advised to keep their personal and business spending separate. Putting personal and business spending in the same account is known as breaching the corporate veil. It can lead to you being held personally responsible for your company's debts and activities.
Suppose you run a corporation or an LLC and fail to keep your business and personal activities separate. In that case, you may lose the liability protection provided by your company's structure, and you may be held personally responsible for business losses.
Managing personal and company costs in the same account might cause undue stress when paying taxes or conducting your bookkeeping. It takes longer to filter through personal and business expenses when they are jumbled together in the same account.
If you need to divide your company and personal spending, do so as quickly as possible. Learn how to create a small business bank account and keep your personal and business funds separate.
If you're not sure if a purchase qualifies as a deductible business cost, understand how the IRS distinguishes between personal and business expenses.
4 Eliminate The Use Of Paper.
While you're catching up on your bookkeeping, make your life simpler by going paperless in your firm.
Create digital recordings of receipts, important papers, and other paperwork as you process your paperwork using the following tools:
- Shoeboxed: scans and organizes your tickets and generates expenditure reports automatically based on your uploads.
- FileThis is a smartphone app that allows you to capture and upload receipts, statements, invoices, and other documents to the cloud.
- ScanSnap Scanner by Evernote: automatically uploads and archives all scanned documents to Evernote.
5 Gather W-9s, 1099s, and W-2s
If you paid independent contractors or employees throughout the tax year, you need to complete the following forms:
Form W-9 & Form 1099-MISC for Independent Contractors
Did you pay an independent contractor more than $600 for services performed during the fiscal year? If this is the case, you must prepare and submit the following forms: a W-9 form with a 1099-MISC form.
A W-9 is a document that asks for taxpayer information from a contractor. It was completed by the contractor and returned to you. You then send 1099 to the IRS based on the information on the contractor's W9. Simply put, Document 1099-MISC is the tax form required by the IRS to monitor payments to independent contractors.
Gathering W-9s and submitting 1099s require a significant amount of legwork. If you're new to the procedure and aren't sure about the deadlines, read How (and When) to File 1099 for advice on making it as simple as possible.
Form W-2 for employees
Must file Form W-2 for all workers.
6 Have Your Costs Reviewed By a Tax Expert.
If you're reading this, you probably want to do everything yourself when it comes to bookkeeping and paying your taxes. And we understand. It is frequently the most cost-effective method. However, before you submit your taxes, we highly recommend that you have an experienced CPA or tax expert check your books, tax deductions, and any other financial information pertinent to your tax return.
It helps prevent mistakes and ensures that you are claiming all of the applicable deductions for your organization. Tax specialists may also communicate with the IRS on your behalf and represent you in the case of an audit, so it's frequently a good idea to establish a connection with a professional financial well before you need their assistance.
Get in contact if you'd rather have someone else handle your backlog of bookkeeping. Our Catch Up Bookkeeping Service can assist you.
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