16 Must-Know Accounting Tips for Tax Season

As the tax deadline approaches, many business owners wonder how they can reduce their accounting and tax preparation costs. The quick answer is to do as much as you can before sending your information to your tax accountant. Many business owners would do this if they knew where to begin. Here are some insider tips to get you started.

Start with the Balance Sheet

Tax accountants begin with the company balance sheet. They examine each balance sheet account to ensure accuracy and verify the supporting documentation. If cash and all balance sheet accounts are reconciled or “tied out” to supporting records, then the profit or loss for the year is also accurate.

16 Essential Year-End Accounting Tasks

Here are 16 crucial year-end accounting tasks to complete before sending your records to your tax preparer. Share this list with your internal accountant or outside bookkeeper t ensure everything is in order.

1) Match Prior Year Balances

Ensure your prior year’s ending balances match the prior year’s tax return. Record any adjustments made by your tax preparer and lock the year in your accounting software to prevent accidental damages.

2) Reconcile Bank Accounts

Remove old outstanding checks and deposits in transit. Your bank balance in your accounting software should match the book balance in the bank reconciliation. Utilize the QuickBooks reconcile function if applicable.

3) Clean Up Accounts Receivable

The accounts receivable balance can become inaccurate due to uncollectible client balances, erroneous credit memos, and duplicate transactions. This issue impacts all accrual basis taxpayers. Even for tax and cash basis businesses, accounts receivable adjustments in the accounting software can sometimes affect cash basis records if not properly managed.

4) Classify Fixed Assets Correctly

Ensure fixed assets are not coded to expense accounts. Reclassify fixed asset additions from expense accounts to the balance sheet, implement a capitalization policy, expense small asset purchases, and depreciate large ones.

5) Reconcile Credit Card Balances

If the statement period ends mid-month, reconcile the January statement to ensure that the December 31 balance is accurate.

6) Reconcile Loans Payable

Ensure all loans payable are reconciled to actual bank balances and record any interest paid.

7) Record Sales Tax Payable

Sales tax paid in January should be recorded as a payable on the balance sheet at year-end.

8) Record Personal Business Expenses

Business owners work very hard. They should never miss a deduction. Record all business expenses paid personally to ensure no deductions are missed. Remember that you can carry losses back or forward. Clearly identify all deposits from owners’ personal funds to the business and withdrawals by the owner to personal accounts.

9) Reconcile Payroll

Ensure payroll as reported on W-2s matches the payroll general ledger accounts. Wage expense, payroll tax expense, and any payroll liability accounts should all agree to the payroll reports.

10) Report Health Insurance for S-Corp Owners

Ensure shareholder/owner W-2s for S-Corporations report health insurance paid by the company. This is a payroll transaction subject to income tax but not Social Security or Medicare taxes. It needs to be reported on the W-2.

11) Equalize Owner Distributions

For S-Corps, ensure distributions between owners are even and match ownership percentages.

12) Record Profit-Sharing Contributions

Record the profit-sharing contribution payable if you know the amount.

13) Estimate Depreciation

Ask your accountant for a projected depreciation number and record it. This estimate will help you work with more accurate financial information.

14) Reconcile Related-Party Transaction

Ensure receivables/payables between related-party businesses agree. For example, if ‘Company A’ owes ‘Company B’ $20,000, both companies should record the same amount.

15) Communicate with Your Tax Preparer

Keep your tax preparer informed about any significant changed in your business, such as buying or selling a building, changes in ownership, or expanding into new states. A quick five-minute phone call in June can save a lot of time and hassle during tax season.

If you have questions about transactions in your “Ask My Accountant” or suspense account, reach out to your accountant for guidance on how to record them accurately. Don’t wait until tax time to address these issues. By asking early, you’ll be more efficient and avoid potential complications later on.

16) Run Regular Reports

Run monthly and quarterly reports from your accounting software. Review the numbers and address any discrepancies with your accountant promptly to avoid larger issues at year-end.

Cleaning up accounting records for year-end is a win-win situation. Business owners benefit from improved accuracy in their own internal accounting records, which leads to better business decisions.

Accurate financial statements enable tax accountants to prepare business tax returns more efficiently and cost-effectively. By following these 16 steps, you’ll ensure your records are in top shape, leading to smoother tax preparation and sweet results.

For any questions about your year-end accounting, contact Peggy Prall, or your trusted accountant at Mahoney.

16 Essential Accounting Tips to Save You Time and Money During Tax Season