Tax Season Ready: The Bookkeeping Habits That Make All the Difference

For all the talk around taxes, the requirement for precise bookkeeping is often an underrated piece of the puzzle. The ability to provide appropriate tax planning and estimates, not to mention accurate annual tax returns. We take a few steps to ensure that client financials are ready for tax season to make it seamless and less stressful for all parties involved.

Here are a few ways we work to make it easy:

Make sure everything is in its place.

Throughout the year, accountants often use miscellaneous accounts as placeholders until the right category is determined. But by the end of the year, we want to make sure anything in an “Other”, “Uncategorized”, or “Miscellaneous” account is categorized appropriately. Use context clues (or an internet search) to book what you can, and invite your client to a meeting or portal to give clarity on anything outstanding. The books will be more accurate as a result, and your client’s tax preparer will be impressed! 

Take advantage of options and software that allow you to reclassify in bulk and create seamless opportunities for clients to provide clarification easily. Make sure that you provide enough time for clients to respond, with a buffer for any return questions that might be necessary. Doing so well in advance of the tax preparer’s deadline for information to be submitted is an added bonus. This step helps to reduce the risk of errors to make sure the tax filing is accurate. 

Ensure that all balance sheet accounts are reconciled.

The best way to make sure that there are no duplicates or missing transactions from business bank and credit card accounts is to reconcile regularly. Every month, we match the corresponding statements to transaction activity and attach to the reconciliations in QuickBooks as support documentation. In addition, we confirm that all business loan and line of credit accounts are appropriately accounted for on the balance sheet, and any other asset and liability accounts (for example, inventory or payroll liabilities) have backup documentation for the balance reflected in the financials. This confirms that all incoming and outgoing cash for items owned or owed are properly accounted for.

One of the best ways to ensure that this is correct at the end of the year is to pull all corresponding statements or third party information and match them to what is in the system. This verifies that the proper amount is being reflected, and that any prior period adjustments are accounted for. This also catches amounts that may need to be reclassified, for example inventory that should be recognized as cost of goods sold, or deferred revenue that should be recognized before year end.

Account for taxes in the appropriate equity and expense accounts.

Depending on the tax treatment of the business under review, tax payments for the year might be reflected as owners distributions in the equity section of the balance sheet, or other expenses on the profit and loss report. We confirm that we are properly accounting for them to ensure that expenses are not over or understated when it comes to available deductions. We also want estimated payments accurately supported by receipts or confirmation pages to ensure that they are being applied appropriately to the correct tax year.

Miscategorizing tax payments can lead to underpayment of estimates throughout the year, and mislead clients as to what they’re taxable income. The Prep for Tax feature is a great option for bookkeepers and non-tax accountants to provide a tax-ready balance sheet and profit and loss statement, as well as providing a common hub to share with any external shareholders that need access to the same information. The ability to collaborate and share creates a streamlined experience for all parties involved.

Get to know the tax preparer.

It often feels like bookkeepers and tax preparers live in two different worlds, but the truth is, our work depends on that of the other. When available, check in with the tax preparer to confirm whether anything in the accounting system needs adjustment to reflect properly in the tax return. Some of the information will be client specific, others will be tips that you can use across the board to ensure that the books are ready for tax season. Best of all, you get insight to how to be a better partner to another part of your client’s finance team.

Ask your client if there is a year end call that happens with their tax professional that you might be able to be a part of. If you aren’t available to attend, check to see if the preparer has any questions on the financials that they are requesting be resolved prior to preparation. The better partnership that you can build with the person responsible for their tax filings, the better of a client experience you can provide to your shared customer. 

The beginning of the year is the best time to re-calibrate and confirm that all of the numbers are where they should be for taxes. Not only is it a final review of all your hard work the prior year, it’s also an opportunity to build a deeper relationship with your client and their team. The extra effort put in to ensure the books are accurate for strategy and taxes goes a long way to ensuring that you are delivering the value that you promise for your service. 

This blog post is part of a paid partnership with Intuit The content has been created collaboratively, and Intuit has compensated Keila for her time and effort in producing this content.

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👋🏾 I’m Keila, founder of Little Fish Accounting and a passionate advocate for firms growing intentionally while achieving big results with small teams.

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