Ten Time-Saving Steps for Your 2021 Business Tax Preparation

It’s been a while since your 2020 tax return has been finalized and filed, and 2021 is quickly moving along!  Here are ten steps to take now – before year end–to save time with this year’s business tax return preparation process.

1. Make sure your 2020 trial balance is correct, as this will affect the accuracy of 2021. Add CPA accounting adjustments. Your internal accounting records should agree to your tax return.
   • Ask your CPA for the adjustments if you did not receive them
   • Ask for help recording the adjustments
   • After the changes have been added, compare your internal accounting records to the trial balance your CPA used for your 2021 tax return.

2. Clear up “unclassified” transactions during the year. Most businesses have a suspense or “ask my accountant” general ledger account used to accumulate transactions that do not have an obvious location in your accounting records.  Unusual transactions are coded there when you don’t know where else to put them.
   • Schedule a meeting with your CPA or send an email asking how to classify these transactions. Frequently, these transactions are a signal that there is something important to talk about (like a new piece of machinery)
   • This account should be zero at year end.

3. Reconcile every bank account.
   • Use the software reconciling tool if possible
   • Review all the outstanding transactions
     • Void old checks that have not cleared
     • Remove erroneous deposits in transit
   • Make sure that the reconciled balance in the bank reconciliation matches the general ledger balance
   • Save copies of your bank reconciliations.

4. Review the accounts receivable listing.
   • Remove erroneous customer credit balances. To do this record a “dummy” client invoice that you don’t send to the client
   • Write off old or uncollectable accounts receivable. To do this record a client credit memo that maps to “bad debts” or “write off expense.”  Don’t send this to your client.

5. Review the accounts payable listing
   • Remove erroneous vendor “credit” balances. To do this record a “dummy” vendor bill, and match them up
   • Remove erroneous vendor payable balances. To do this record a vendor credit memo that maps to the related expense in the original vendor bill.

6. Review every line of the balance sheet.
   • Every balance sheet account should have a supporting work paper that “proves” that the balance exists and is correct
   • Contact your CPA if you don’t understand a general ledger account balance.

7. Adjust payroll related general ledger accounts to agree to payroll reports.
   • Wage expense should equal wages per your payroll reports, plus or minus the change in the wage accrual.
   • Payroll tax expense should equal employer payroll taxes per the payroll tax reports plus or minus the change in the payroll tax accrual.
   • Payroll liability accounts should agree to upcoming payroll payments, and zero out as these liabilities are paid.

8. Set up software tracking tools to answer year end tax return related questions. Two common tracking tools are used for:
   • Revenue by state – use and update the “location” or address tabs in your software system with correct state info.
   • Functional expense reporting – turn on class accounting

9. Set up 1099 vendor tracking now.
   • Turn on 1099 features
   • Update vendor info to include:
     • Correct name, address, and contact info
     • Tax id info
     • Check the box in your software if a 1099 may be required

10. Communicate with your CPA when there are changes to your business, or events that affect your accounting.  Common changes include:
    • Changes to a segment of your business
    • Changes in ownership
    • Selling or buying equipment or a building
    • Paycheck Protection Loan (and forgiveness)
    • Employee Retention Credit
    • Pandemic related grants from other sources.

If you address these areas in your accounting records now, your meeting with your CPA will be more productive and efficient at tax time. Take actions now to save time next tax filing season.

For additional considerations, please reach out to Peggy Prall, Associate Director or contact our Business Solutions Team at Mahoney to be of help to you in any way.