The Role of Organized Bookkeeping in Tax Filing
For business owners, staying organized with financials is about more than spreadsheets lining up nicely or thoroughly reconciled accounts (although both are important). It’s about the crucial role organized bookkeeping plays in the actual tax filing process. Simply, organized records both save time and reduce errors during tax preparation. For those who filed an extension this year, this means getting organized now, as those due dates are quickly approaching. To that end, we’ve compiled some helpful tips in an effort to help you manage and organize your bookkeeping for accurate and timely tax reporting within the next couple of months:
- Review and Update Transaction Records
The importance of accuracy when recording transactions cannot be overstated. Accurate records help to ensure real-time visibility into revenue, expenses, and cash flow in order to make the most informed operating and strategic decisions. Accurate records do much more than help with decision making, though. They also facilitate tax compliance, thereby reducing the risk of penalties. Further, timely updates increase the likelihood of promptly identifying discrepancies, fraud, or errors, promoting financial transparency and accountability in the business.
- Categorizing Income and Expenses
Accurate categorization of income and expenses is extremely important to precise tax reporting. It forms the foundation of transparent financial records. Start by ensuring all income and expenses are recorded and updated in your accounting software. If you want to have tax-deductible expenses, your accountant needs to find them. Pay close attention to discrepancies and bring them up with your accountant as soon as possible. Additionally, now is a great time to organize all your business receipts.
It’s also important to address commonly missed details, such as credit card processing fees, especially during the process of recording deposits from merchant processors. These fees can easily slip under the radar when business owners are recording transactions, leading to discrepancies between reported income and actual deposits. These types of discrepancies will inevitably impact the accuracy of tax calculations and potentially raise red flags during audits. Properly categorizing credit card processing fees as expenses helps account for their impact on revenue and ensures that tax liabilities are calculated correctly
- Bank Reconciliation
With everything seemingly at our fingertips now, many mistakenly believe that looking at bank feeds on their smartphones is enough to reconcile their accounts. Unfortunately, this isn’t so. While bank feeds streamline data entry by automatically importing transactions, they still require manual verification against business records to ensure accuracy. Reconciliation involves comparing these transactions with internal records, identifying discrepancies, and resolving them.
It’s a critical process to maintain accurate financial records, catch errors, and detect potential fraud as quickly as possible. Simply accepting bank feed transactions without proper reconciliation can lead to misleading financial information, which could impact decision-making and financial integrity going forward. Instead, you want to confirm that your accounting records match your bank accounts in a timely manner. Compare your statements to your accounting records, and again, look for any discrepancies.
- Collaboration with Your Accountant
It is crucial to sync your bookkeeping efforts with your accountant’s work both before and after the business’s tax return is prepared. To do so, you must provide your bookkeeper with all adjusted entries, updated records, and identified discrepancies as soon as possible. This proactive approach helps to ensure accurate financial records, compliance with tax regulations, and effective financial decision-making. Not only will it streamline operations, but also ensure that your business is on solid financial footing.
- Final Review and Document Preparation
All transactions, records, documents, and returns must be meticulously reviewed before submission. Errors can lead to unnecessary time and money spent in penalties, audits, and financial setbacks. A thorough review helps avoid this by identifying discrepancies, missed deductions, and inconsistencies, allowing time for corrections before submission. Precise records enable informed tax planning, maximizing deductions and minimizing risks and liabilities. Ultimately, this safeguards the business’s financial health and reduces the risk of costly post-filing issues.
These proactive steps can (and should) be taken by every business owner as they manage their bookkeeping for accurate tax reporting for the approaching tax filing dates. For anyone who needs additional assistance, we are here to help get your bookkeeping organized and ready for your tax return. At Agile Planners, we provide strategic guidance and outsourced CFO services to companies of all sizes. We can help provide the strategy your organization needs for the growth you want. We understand that no two organizations are the same. And with our experience and financial knowledge, we can help develop the right strategic plan for your business to grow and reach its goals. Simply, we’ll be your trusted partner, so you can focus on running your organization. Contact us today to learn more about how we can help.