The easiest tax season starts before the tax return is being prepared. If the books are reconciled, major transactions are documented, and financial statements have been reviewed, the tax process is usually much more efficient.
Key takeaways
- Make sure every business financial account is included.
- Reconcile bank and credit-card accounts through year-end.
- Resolve uncategorized and unusual transactions.
- Review loans, payroll, owner activity, and major purchases.
- Keep supporting documents organized.
- Review the Profit and Loss and Balance Sheet before tax preparation begins.
1. List every business account
Include checking, savings, credit cards, payment processors, loans, and lines of credit used for business activity.
2. Reconcile through the end of the year
Do not assume a bank feed means the books are reconciled. Compare the accounting records with the actual statements and investigate differences.
3. Resolve uncategorized transactions
Old unclear transactions become harder to explain with time. Resolve them while you still have access to receipts, emails, and business context.
4. Separate personal and business activity
Identify owner contributions, draws, distributions, reimbursements, and personal charges instead of treating everything as normal business income or expense.
5. Review major purchases
Equipment, vehicles, computers, furniture, improvements, and other significant purchases may require different tax treatment than ordinary operating expenses. Keep the purchase documents.
6. Review loans
Confirm year-end loan balances and separate principal from interest where appropriate.
7. Reconcile payroll information
Compare the bookkeeping with payroll reports and year-end payroll filings. Employers also have specific federal employment-tax recordkeeping requirements; see IRS employment tax recordkeeping.
8. Review contractor payments
Make sure payee information is complete and review whether information reporting may be required. The correct form and filing requirement depend on the facts.
9. Organize source documents
The IRS says supporting documents help support entries in the books and tax return. See IRS Recordkeeping.
10. Review the financial statements
Look at the Profit and Loss and Balance Sheet. Ask whether the numbers make sense based on what actually happened during the year. Investigate unusual negative balances, old receivables, loan discrepancies, or accounts that appear materially wrong.
11. Prepare a tax-question list
Keep a short list of unusual events such as a vehicle purchase, new entity, property sale, large equipment purchase, retirement-plan change, new employees, or major financing.
12. Move into the tax workflow
Once the books and documents are organized, the tax preparer can focus on the tax return rather than first reconstructing the bookkeeping.
Frequently asked questions
What if my books are already behind?
Start with the most recent complete statement for each account, identify the missing periods, and determine whether you need catch-up bookkeeping before tax preparation.
Should I wait until I have every tax form before cleaning the books?
No. Much of the year-end bookkeeping can be completed before every tax document arrives.
Can TaxFlow replace bookkeeping?
No. TaxFlow is MTA’s tax workflow and client portal. Bookkeeping remains the financial-record process. The two should connect, not duplicate each other.
Next step: Use Benny the Bookkeeper for ongoing bookkeeping and TaxFlow for the tax workflow.