How do I prepare my books for tax season?
Reconcile every bank account and credit card through December 31. This is the foundation. If your accounts aren’t reconciled, your numbers can’t be trusted and your tax preparer will spend time figuring out what’s real. That time costs you money.
Review every transaction for proper categorization. Sort by category and look for anything that seems off. That $2,800 charge sitting in uncategorized expenses needs to go somewhere specific. Meals and entertainment should actually be meals, not a mix of client dinners and office supplies. The categories flow directly to your tax return, so accuracy matters.
Clear out placeholder accounts. If you’ve been parking confusing transactions in “Ask My Accountant” or similar holding categories, now is the time to research what they actually were and code them correctly. Your accountant shouldn’t be guessing at what a random Amazon charge was for.
Review your accounts receivable and accounts payable. Write off any receivables that are truly uncollectible. Make sure all vendor bills that arrived in December are recorded, even if you haven’t paid them yet. This affects your year-end profit number.
Gather your 1099 forms. You’ll receive 1099s from clients who paid you more than $600. You also need to issue 1099s to vendors you paid more than $600 if they’re not corporations. The deadline for sending 1099s is January 31, so handle this early.
Review fixed assets. Did you buy equipment, furniture, or vehicles this year? Those shouldn’t be expensed directly. They need to be recorded as assets and depreciated. Did you sell or dispose of any assets? That needs recording too.
Pull personal expenses out. If you accidentally paid for groceries with the business card, that’s not a business expense. Code personal transactions to owner’s draw so they don’t inflate your deductions.
Run a profit and loss statement and balance sheet for the full year. Review them for anything that looks wrong. Revenue way higher or lower than expected? An expense category that seems too big? A negative bank balance that shouldn’t exist? These are signs of misclassified or missing transactions.
The businesses that have the easiest tax seasons are the ones with ongoing bookkeeping throughout the year. Monthly reconciliation and categorization means there’s very little cleanup needed come January. You’re just running reports and handing them over, not scrambling to reconstruct twelve months of transactions.
If your books are behind or messy, get them caught up before your tax appointment. Showing up with a shoebox of receipts and unreconciled accounts means your accountant charges more, your return takes longer, and you risk missing deductions you’re entitled to. Many small businesses find that working with Andover, MA advisory services before tax season pays for itself through smoother filings and fewer surprises.
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