With another tax season fast approaching, now is the time to take a look at your books and records to determine what needs to be done to prepare for year-end. Consider the following questions:
1. Is my general ledger up-to-date and are my cash accounts reconciled?
Hopefully your answer is yes, but if not, begin going through your general ledger by comparing it to your monthly bank transactions. Make sure all the checks issued throughout the year have cleared, all customer invoices created have been paid, and that your general ledger matches the bank statement with the exception of any outstanding transactions. It should be a best practice to identify and correct any discrepancies throughout the year to minimize the time spent at year-end.
2. Are all of my transactions categorized correctly?
If you collect sales tax, be sure to record this part of your payment to a sales tax liability account. If you have employee payroll, be sure you differentiate between the wage portion and the employer’s share of payroll taxes. These expenses should be recorded in separate accounts so that your accountant can easily identify them for reconciliation and tax presentation purposes.
3. Are my deductions able to be properly substantiated?
To claim a deduction, you must be able to substantiate the expense with supporting documentation such as an invoice or receipt. Proper recordkeeping is essential throughout the year so that requested information is readily available upon request from your accountant.