Updated: Oct 1, 2021
The end of the year is here and it is time to start getting ready for taxes. You need to make sure your books for your business are in order. If you have an accounting software already, go in and get everything caught up and accounted for. Next, Reconcile all your accounts.
Reconcile means that you take your monthly bank statements and match it up against what you have in your accounting software. If you have checks that haven’t cleared, invoices that haven’t paid, or other accounts payable and receivable. Then, take time to contact those vendors and clients and make sure you clear all outstanding checks, and invoices before the end of the year. If you have transactions that are duplicated, delete them! If you have transactions that are missing, add them by adding a journal entry.
Common reasons you have duplicated transactions is you have connect your bank account and other software such as square or PayPal and they are doubling up on entries. My suggest is to just have your bank account connect to accounting software. I have seen this issue numerous times.
A reason you might have duplicated or missing transactions is your connection with your bank account and your accounting software was disconnected. Sometimes accounting software will pull a few days twice (which causes duplicates) or will miss days for the period that it was not connect to your accounting software (which causes missing transactions.)
If you don’t have a current accounting software or have several days, weeks or months missing in your accounting software, I suggest downloading the transactions from your bank account and uploading them to your accounting software. Once downloaded categorize these transactions before you reconcile.
Once you have reconciled your accounts, look at your Profit and Loss and Balance Sheet Reports. Most accounting software will allow you to pull these reports and click on the amounts. I suggest clicking on every amount and verify that each line looks correct. If there is any thing that is off, make changes needed. If you make changes, you may need to reconcile again because it is important to have these reports accurate.
Once you have reviewed both the Profit and Loss and Balance Sheet and are sure they are accurate. Create these reports for the full year and give them to your tax accountant for taxes or use them to prepare your taxes yourself. In addition to these reports, create a report of your mileage for the year. I would suggest having an excel sheet or another report that shows the date, location you drove to, miles from your home office to the location or your office to the location, and reason for the visit. I would also take note of utilities costs in your home, square feet of your office and total square feet of your home if you have a home office. Then you will take a portion of your utilities on your tax return as a business write off based on the percentage of your home office square feet and the total square feet of your home.
After reviewing your financial reports, if you feel like you want more tax deductions besides mileage, utilities and home office, consider the following:
- Buy equipment or other needed large purchases for your business. Keep in mind though, it will most likely have to be depreciated over several years so you will only be able to write off a small portion of that purchase this year.
- Buy any supplies and other software that is a smaller purchase (less than $400) and you can count it in this year.
- If you’re an S Corp and meet the deduction limits for Corporate Rent. If you want to know more information talk to your tax accountant about your options regarding corporate rent.
- Invest in a savings plan. Make sure you advise with your tax accountant for suggestions.
- Contribute to a Health Savings Account (HSA) make sure you follow the limits based on your family size and have a high deductible insurance plan.
Always advise with your tax account about tax deductions that are best of your business and family. These suggestions are just general suggestions.