Step-by-Step: How to Prepare Your Books for Tax Savings
Tax season can be stressful for small business owners looking for those tax savings, but it doesn’t have to be. With a little preparation and organization, you can ensure your books are tax-ready well before the deadline—saving you time, avoiding penalties, and giving you peace of mind getting those tax savings. Hi my name is Josh Parsley and I own Thank Heavens Bookkeeping.
This step-by-step guide will walk you through how to get your books in order so you can sail smoothly through tax season.
1. Organize Your Receipts and Invoices
Receipts and invoices are the backbone of your financial records. Start by gathering and organizing all documentation related to your business expenses and income.
- Income Receipts: Include all sales invoices, paid customer invoices, and bank deposit records.
- Expense Receipts: Organize receipts for business purchases, rent, office supplies, utilities, mileage logs, and more.
Tip: Use digital tools like QuickBooks or Dext to scan and store receipts electronically. This eliminates the stress of dealing with paper clutter.
2. Reconcile Your Bank and Credit Card Accounts
Reconciling your accounts ensures your books match your actual financial transactions.
- Review your bank statements, credit card statements, and accounting records.
- Match transactions in your books with the statements to spot any errors, missed entries, or duplicates.
Why it matters: Reconciling keeps your records accurate and avoids surprises when it’s time to file.
3. Categorize Your Expenses Correctly
Proper expense categorization is key for maximizing deductions and staying compliant. Common categories include:
- Office Supplies
- Rent or Lease Payments
- Utilities
- Travel and Meals
- Advertising and Marketing
- Professional Fees (like bookkeeping or legal services)
Tip: Consistent categorization makes your expenses easier to manage—and reduces the time your tax professional spends on your books.
4. Review Accounts Receivable and Payable
Before tax season, ensure your accounts receivable (money owed to you) and accounts payable (money you owe) are up to date.
- Follow up on outstanding customer invoices to collect payments.
- Pay any bills or debts to avoid penalties and interest.
Why it matters: Accurate records ensure your income and expenses are reported correctly on your tax return.
5. Check Payroll Records
If you have employees, review your payroll records to confirm:
- Wages paid align with your books.
- Payroll taxes (like federal, state, and Social Security) have been filed and paid.
- All necessary tax forms (W-2s or 1099s) are ready to distribute.
Note: Double-check your contractor payments to ensure 1099 forms are issued for those paid $600 or more during the year.
6. Maximize Deductions and Credits
Don’t leave money on the table! Tax deductions and credits can save you big when properly recorded. Some commonly missed deductions include:
- Home office expenses (if you qualify).
- Business-related mileage and vehicle expenses.
- Education or training costs.
- Business-related software subscriptions.
Tip: Consult with a bookkeeper or tax professional to uncover all eligible deductions.
7. Generate Key Financial Reports
Once your books are organized, generate key financial reports to review your numbers before filing. These include:
- Profit & Loss Statement (P&L): Shows your income and expenses for the year.
- Balance Sheet: Provides a snapshot of your assets, liabilities, and equity.
- Cash Flow Statement: Helps track cash coming in and out of your business.
Why it’s helpful: These reports give you a clear picture of your business’s financial health and help ensure accuracy when preparing your tax return.
8. Back Up Your Records
Before finalizing your books, create digital backups of all your financial records, including:
- Receipts and invoices.
- Bank and credit card statements.
- Financial reports.
Tip: Store your backups on secure cloud services like Google Drive or Dropbox to keep them accessible and protected.
9. Consult a Bookkeeper or Tax Professional
Even with organized books, it’s smart to get a professional’s eyes on your finances before filing. A professional can:
- Double-check your records for errors.
- Identify deductions you may have missed.
- Prepare and file your tax return accurately.
Pro Tip: Working with a bookkeeper year-round makes tax season a breeze, as your books will already be organized and up to date.
10. Start Preparing Early Next Year For Those Tax Savings
The best way to reduce tax season stress? Start early!
- Set up a consistent bookkeeping routine (weekly or monthly).
- Use tools like QuickBooks or Xero to automate your bookkeeping.
- Keep personal and business expenses separate.
Why it matters: Staying on top of your books year-round prevents the last-minute scramble when tax season rolls around.
Conclusion
Preparing your books for tax season doesn’t have to be overwhelming. By following this step-by-step guide, you’ll not only save time but also reduce stress and avoid costly mistakes.
If you’re finding it hard to stay on top of your bookkeeping, hiring a professional bookkeeper can be a game-changer. They’ll ensure your books are accurate, up to date, and ready for tax season—so you can focus on running your business.
Need Help Preparing for Tax Season?
As a professional bookkeeper, I specialize in helping small business owners get their finances organized and tax-ready. Reach out today for a free consultation and let’s get your books in order!