If done correctly, transitioning from year-end bookkeeping into tax season is like gliding from one song to the next in a perfectly mixed playlist—smooth, effortless, and without missing a beat. However, without the right framework in place, you can be left with a muddled mix. To ensure that you have a harmonious tax season, we have compiled a list of 8 year-end bookkeeping tips that can set you up for success.
1) Reconcile All Accounts
Begin by ensuring that all bank, credit card, loan and merchant accounts are fully reconciled by year-end. This ensures that you have a clear picture of the financial health of your business and avoids any surprises during tax preparation.
2) Organize Receipts and Documentation
Set aside time to organize and categorize all receipts and backup documentation that support your transactions. This could include charitable donations, asset purchases, etc.
Digital tools or apps can simplify this process and make it easier to find information during tax season.
3) Review Payroll and Employee Data
Check your payroll reports to ensure that they are up to date. It is also important to check that employee tax forms (such as T4s for employees and T4A or T5018 forms for independent contractors) are accurate and ready to be filed.
4) Double Check Deductible Expenses
Review deductible expenses to make sure that everything is categorized properly to maximize deductions. This includes expenses such as business travel, home office costs, meals, entertainment, etc.
5) Prepare Financial Reports
Compile and organize your essential financial reports like your income statement, balance sheet, and cash flow statement. Make sure to confirm that your GST/HST returns are up to date and verify any other required tax filings, such as T4 slips for employees or T5 slips for dividends paid out.
6) Use Tax Integration Software
Using bookkeeping software such as QuickBooks or Xero streamlines data transfers and avoids any errors made with manual entries. This not only saves you time but also helps to reduce any errors during the tax filing process.
7) Plan for Estimated Taxes
If applicable, review your estimated tax payments and make adjustments for the upcoming year based on your income levels and potential tax liabilities.
8) Archive and Backup Files
After you complete your year-end bookkeeping, it is essential that you archive and securely back up all financial documents. This will ensure that your documents are stored safely and ready for tax season.
Although tax season is a highly stressful time for business owners, going into it with a strong system in place can make all the difference. That being said, the ‘perfect’ bookkeeping process varies based on company and it can be hard to determine what is best for you. Luckily, there are teams of professionals that can help you navigate how to best suit your business’ unique bookkeeping needs. Here at STEPS, we offer tailored small business bookkeeping services and can get your books in tiptop shape for the upcoming tax season. Visit the bookkeeping section of our website to learn more or reach out to us on our contact page.
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