As a small business owner, the first quarter of the year is the time to get ready for taxes. This comes with a little stress and anxiety for even the most prepared entrepreneurs. However, if you’ve been a little relaxed in your recordkeeping practicing, being ready for taxes may create more than little stress.
If you don’t have your bookkeeping in order, your taxes may not be accurate. And no one wants to get that wrong.
Here is a list of some easy-to-follow tips on how you can get your bookkeeping in order, and catch them up so you are ready for taxes.
Being Ready for Taxes Means Knowing Your Income and Expenses
As you are catching up on your bookkeeping what you will be looking for is documentation of your income and expenses. These are the hidden gems to get you the best tax rates and to be confident you’re not overpaying.
There are a lot of deductions that you can take as a small business owner. But without knowing all the money you have flowing through your business, there is no way to know if you qualify for them.
For all income, you need to record the source. And for all expenses, you want to know the purpose.
For more information on what you need to track and why check out our free bookkeeping course for small business owners.
Get Your Receipts and Statements Ready for Taxes
Organization is an important part of bookkeeping. If you aren’t organized or don’t have an organization system in place, it’s going to be really hard to keep up with your books on a consistent basis.
You don’t need a fancy system to organize your receipts. Something as simple as a Google Drive works very well. Check out this post to learn How to Organize Receipts in Google Drive.
When you’re getting caught up on your bookkeeping, gather receipts and statements. You will need both your bank and credit card statements to be ready for taxes. These need to be handy to document all of your expenses as well as income.
Be diligent in looking through every possible statement where you may have had a business expense. It’s easy to lose receipts when you don’t have a system in place to keep your bookkeeping up to date. But those statements may shed some light on possible expenses you forgot about.
It’s important to go back as far as you can. This will get you ready for taxes this year, but it will create history as you get caught up in your bookkeeping. This is helpful for business decisions as well as showing how long you have had that particular business expense.
Turn Your Box of Receipts into a Tax Ready Report
You don’t want to try to file your taxes with a box or folder full of receipts – trust me, it won’t be accurate.
Taking the time and go the extra step to record all of that data somewhere will pay for itself. Use a software program like Quickbooks Online or something similar.
If you tried this once before, you may already have a good starting point. Log back in and see where you left off.
The best part about using cloud-based software programs is that they can sync directly to your bank and credit card accounts and can pull in a good portion of your transactions for you. Making getting ready for taxes even easier.
Once you have updated those feeds, go transaction by transaction and categorize them to the correct income or expense account. This can be time-consuming and it is generally the reason most business owners get behind on their bookkeeping.
But, this is what is going to get you those accurate bookkeeping records. If you aren’t using software, the minimum you need to have is a spreadsheet. Start entering everything on your statements, month by month. You’ll want to do the same thing that you would do in online software – take each transaction and categorize it somewhere.
Don’t Stop Here – Be Ready for Taxes Every Month
Once you have all your transactions entered and categorized. Set aside time every month to do this with new transactions. This will keep you tax-ready every month.
Especially if you are using software, you’ll want to reconcile each account month by month. This ensures that you capture every transaction and you’ll know the starting and ending balances are correct if you can get them to match your statements.
The process of reconciling is really just ensuring that every transaction is accounted for.
It’s Time To See The Results
This is the fun part. Once you have a process of entering your transactions and reconciling your accounts every month. You can create Profit & Loss statements and Balance Sheets.
These are the basic reports that every small business owner needs to make the best decisions for their business. If you have a tax preparer handling your taxes. They will need to see these reports.
Don’t Wait, Get Started
When you understand Why Bookkeeping is critical to the success of your business, you’ll want to keep up on the paperwork.
The best you can do is GET STARTED!
When you’re starting out behind it can seem overwhelming and daunting. But you NEED accurate bookkeeping to file accurate taxes! And no, you can’t just avoid taxes.
If bookkeeping is new to you and seems overwhelming, check out the free course. It is about one hour and you will gain clarity on how to be compliant. Plus you will feel empowered over your financial records.
And let me know what you think about getting ready for taxes in the comments below. What is your game plan? Once you’ve gotten caught up, come back and tell me how far back you went!