Preparing your books for your accountant in advance of tax season is crucial for an accurate and smooth tax return process. Here’s a step-by-step guide to ensure your records are well-organised and comprehensive:
1. Organise All Financial Documents
- Why: Your accountant needs complete records to assess your income, expenses, and deductions.
- Actionable Tip: Gather all relevant financial documents, such as:
- Income Statements: Include invoices, sales reports, or any income received during the tax year.
- Expense Receipts: Organise all business-related expenses, including utility bills, office supplies, software, and travel expenses.
- Bank Statements: Collect statements from all business-related accounts.
- Loan and Lease Agreements: Include documents for any business loans or equipment leases.
- Investment Documents: For investments, provide all dividend reports and capital gains/loss statements.
2. Reconcile Your Bank Accounts
- Why: Ensuring that your bank statements match your bookkeeping records is critical for accuracy.
- Actionable Tip: Use accounting software or reconcile manually to match all transactions recorded in your books with your bank statements. Address any discrepancies before sending your books to your accountant.
3. Update Your Profit and Loss Statement
- Why: This statement provides a snapshot of your business’s revenue, costs, and expenses for the year.
- Actionable Tip: Make sure your income statement accurately reflects all income earned and expenses paid during the year. Break down your expenses into categories like rent, salaries, supplies, and marketing.
4. Prepare a Balance Sheet
- Why: A balance sheet helps your accountant assess your business’s overall financial health and assists with reporting assets and liabilities for tax purposes.
- Actionable Tip: The balance sheet should include:
- Assets: Cash, accounts receivable, equipment, inventory, and other business property.
- Liabilities: Business loans, credit card debts, accounts payable, and any taxes owed.
- Owner’s Equity: The residual interest in the assets of your business after deducting liabilities.
5. Categorise and Review Expenses for Deductibility
- Why: Not all expenses are tax-deductible, and categorising them correctly will help maximise tax savings.
- Actionable Tip: Ensure that your expenses are properly categorised (e.g., office supplies, meals and entertainment, professional fees). Identify and flag potentially deductible expenses such as:
- Home Office Deduction
- Vehicle Expenses
- Employee Salaries and Benefits
- Depreciation on Assets Review these with your accountant to confirm eligibility.
6. Record Payroll Information
- Why: Payroll taxes, employee benefits, and contractor payments need to be accurately reported.
- Actionable Tip: Provide detailed payroll records, including employee wages, payroll tax payments, and benefits provided.
7. Organise Receipts and Invoices
- Why: Clear documentation helps verify expenses and deductions and can serve as proof in case of an audit.
- Actionable Tip: Sort receipts and invoices by category and date, and ensure they match what’s recorded in your accounting system. Digitising receipts can make it easier for your accountant to review them quickly.
8. Track and Report Business-Related Mileage
- Why: If you use a vehicle for business, the miles driven can be deductible.
- Actionable Tip: Prepare a log of your business mileage, showing the date, purpose of the trip, miles traveled, and starting and ending points. Use a mileage tracking app or keep detailed manual records.
9. Compile and Review Loan and Interest Information
- Why: Loan interest is often deductible, and repayments can affect your cash flow and tax liabilities.
- Actionable Tip: Provide a summary of any loans your business has taken out, including the loan amount, interest rate, and repayment details. Document any interest paid during the year for potential deductions.
10. Prepare Depreciation and Asset Reports
- Why: Depreciation of business assets (e.g., equipment, vehicles, and property) can impact your tax deductions.
- Actionable Tip: Create an updated list of all assets, including purchase dates, amounts, and depreciation schedules. Ensure your accountant has access to previous years’ depreciation reports to maintain consistency.
11. Review Previous Year’s Tax Return
- Why: Reviewing last year’s return can help ensure consistency and provide a baseline for deductions, credits, and business activity.
- Actionable Tip: Compare your current year’s financials with the prior year’s tax return to spot any major discrepancies. Provide the prior year’s return to your accountant for reference.
12. Keep Records of Estimated Tax Payments
- Why: If you’ve made estimated tax payments throughout the year, your accountant needs to know the amounts and dates to calculate any remaining tax liability.
- Actionable Tip: Document all quarterly tax payments and any other taxes paid (e.g., state, local, or sales tax).
13. Set Up a Meeting with Your Accountant
- Why: Communication with your accountant is key to ensuring nothing is missed.
- Actionable Tip: Schedule a meeting to review your books and discuss any potential tax-saving strategies before your accountant files your return. Use this time to clarify any concerns and ensure your financial records are in perfect order.
14.Bonus Tip: Use Accounting Software
- If you haven’t already, consider using accounting software like QuickBooks, Xero, to keep your financials organised throughout the year. These systems can generate financial reports and automatically categorise expenses, making tax prep easier.
Following these steps will ensure that your books are well-organised, accurate, and ready for your accountant, helping to reduce the time and cost of preparing your tax return while maximising your deductions and minimising errors.
If you’re looking for support with your business accounts, we’d love to support you. Give us a call 01775 529345 at or drop us a line at office@cbsltd.org to schedule a no-obligation chat.
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