Tax filing season is here, and that means tracking down a lot of information. It may feel overwhelming, so here are six tips to simplify the process. This is especially helpful if you’re a business owner filing for the first time.
Make an inventory of your business’s financial accounts.
This list can be in any format that works for you, as long as you’ve identified them all! I’ve seen instances where clients open bank or credit accounts and use them for their business. And then neglecting to include these transactions in their bookkeeping. This leads to underestimating income, expenses or both. So be sure to outline all financial accounts associated with your business to avoid any issues in the future.
What types of items are usually left out? One example is a store owner client that received correspondence for not reporting income from a Square account. It turns out that when starting their business, a Square account was opened under the owners own social security numbered, versus the business’s EIN (employee identification number). And then, they completely forgot to include it!
Reconcile balances for all financial accounts.
Once you’ve identified all your accounts, categorize the transactions into income and expenses. This can be further sorted based on your business. Still, the point here is to identify money in and money out. For this step, you may decide that it makes sense to hire an experienced bookkeeper. It saves both time and potential penalties down the road for any miscalculations or oversights. These specialists also help avoid forgotten financial accounts!
Account for business expenses that you may have contributed to from your personal assets.
During the first years in business, business owners may take so much from personal expenses for business without even realizing it! It’s easy to remember significant personal contributions to your business like a computer or mobile device. But also monitor those not such obvious expenses like mileage, stamps, or even client gifts. The little things add up!
Prepare financial statements.
Depending on the size and nature of your business, you should have an accounting software system in place to generate these reports, all while following the above steps. If you are mastering excel but need to scale, there are some excellent free alternatives like WaveApps, which offers a free trial.
Submit financial statements to your tax preparer or CPA (certified public accountant).
The same way you know your business, a tax preparer or CPA knows their business. Use this resource! Take the opportunity to ask questions about your growing business, and new elements to consider adding such as bookkeeping and payroll services.
Set up goals and identify trends in your business industry that can assist you in managing cash flow, growth prospects, and more this year!