June 8, 2021 | by Chris Pentrack
The good news for small businesses? This year's taxes are done. The bad news? It's time to get started on next year's taxes.
Actually, the news isn't all bad. The post-tax-season reset is a good opportunity to establish new bookkeeping habits that will make tax filing easier and less stressful in the future. Here are some tips on how to go about it.
Set Up Payroll Services
If you don't have a professional payroll services provider, start looking for one. From issuing regular paychecks that are free of errors to complying with state and federal compliance laws, a professional payroll provider will save you time and frustration. Most modern payroll providers can also include HR value-adds like tracking each employee's remaining vacation days and paid time off (PTO) accrual.
Use the Cloud
Okay, so maybe you were skeptical of cloud-based bookkeeping systems back in, say, 2018. But the technology has gained widespread acceptance — in part because of a global pandemic that accelerated the use of remote work technologies.
Bottom line: If you're not online, you're behind the times. And that just adds an unnecessary degree of difficulty to the digital recordkeeping and file sharing that are an essential part of 21st century bookkeeping. Time to get with the (software) program.
Optimize Your Chart of Accounts
Your chart of accounts is a bookkeeping system that records all of your revenue and expenses in the way that best reflects how your business operates. So if you have multiple revenue sources, make sure you can track each one using a simple coding system that provides full transparency and makes it easier for you (as well as other key stakeholders) to see exactly where every dollar comes from and where it ends up.
Make Sure Your Transactions Are Classified Correctly
This follows the same basic logic as optimizing your chart of accounts. Proper classifications make it much easier to identify your profit centers. Classifications are particularly important at nonprofits. When it comes to compliance with IRS regulations and protecting your tax-exempt status, accurate classifications aren't a nice-to-have; they're a must-have.
Develop Bookkeeping Habits That Stick
So far, we've covered one-time structural changes that will improve your ability to keep good tax records. Now we'll discuss the ongoing bookkeeping habits that will help keep your books up to date and accurate.
Here's the breakdown of what you need to do and when you need to do it:
Perform these tasks on a daily basis:
Anything that happens as a routine part of your business day should be processed that same day, including:
Take care of these tasks weekly and biweekly/semimonthly:
Every month, perform a month-end close:
Before moving on to a new month, it's vital to close the books on all the financial transactions for the month you've just completed. As part of the monthly close, your bookkeeper should make any journal entry adjustments that are necessary, reconcile balance sheet accounts and verify the accuracy of your income statements.
Reviewing transactions on a monthly basis enables you to spot errors and fix them quickly so they don't carry over into the next month. You can also correct transaction categories, which will help you maintain consistent data so you're always comparing apples to apples.
In addition to keeping your books accurate and up to date, the month-end close helps prevent fraud by exposing any financial irregularities, such as unauthorized debits or credits. It can also provide timely financial insight that can help you get in front of a potential problem or seize an opportunity. So as you review your data, look at areas where you're underperforming or overperforming.
Monthly tasks include:
Complete these quarterly tasks:
Just as car maintenance calls for service checks at different cadences, good bookkeeping requires different check-ins and double-checks less frequently than others. Nevertheless, it's important to do the following every 13 weeks:
Perform these yearly tasks:
Your year-end bookkeeping tasks are also a good time to review your previous year's business plan and budget forecasts and compare them to your actual performance. This is a valuable exercise whether you spent the year dodging speed bumps and curveballs, or whether you performed much better than anticipated. Either way, it's important to use that data to map out your budget forecast and financial plan for next year.
And, of course, you need to file your annual tax returns.
That's where we started, and that's where we'll end. But now you've got a plan to make it much easier on yourself (as well as your CPA) next time around.
At Supporting Strategies, our professional bookkeepers and controllers use a team-based approach that ensures multiple sets of eyes can review every transaction. And we follow our established bookkeeping best practices — providing business owners peace of mind. Contact Supporting Strategies today.
Chris Pentrack, Managing Director, Supporting Strategies | Pittsburgh, provides outsourced bookkeeping and controller services.
This website is created by Supporting Strategies to provide general bookkeeping and accounting information only. Supporting Strategies does not provide tax, legal or accounting advice, and the information contained herein is not intended to do so. As such, the information provided should not be used as a substitute for consultation with professional tax, legal, and accounting advisors, and you should consult with a tax, legal and accounting professional before engaging in any transaction.
Supporting Strategies is not a CPA firm.