Tax Tips to Clean Up Your Books
The first thing you want to do is make sure that you actually have all of your transactions in your accounts. Accounting software has a reconciliation function. Reconciliation is an accounting word that basically means you go in and look at your books. You can see the transactions inside of your book software and compare those transactions to the actual bank statements that you have. Making sure that those statements are reconciled. Meaning everything in your books is what your bank statements show, and what your bank statements show is what you have in the books.You don’t want duplicate transactions inside your software. That is a very important step to make sure your books are cleaned up.
Another thing you want to do is to make sure all your accounts are in your books. As we go through clients’ books and help them identify missing parts, sometimes we find entire bank accounts missing which have income and expenses reported in them. If the client missed that, when the IRS decides to do an audit the first thing the IRS does is look at bank statements. They would see that, and they’re going to immediately think fraud. That’s just how they think. They think we’re all evil. So make sure you have all the right accounts in your books and make sure all those accounts are reconciled.
The next tip, in general, is having a negative number in an account is bad. If you look at a profit and loss statement and your income number shows a negative number, that’s bad. If you have an expense category and that number’s negative, that’s bad. The only accounts that should be negative is your service and discount category. Ask yourself, do my books show a negative cash balance in my bank accounts? If your books show a negative, there are some problems that need to be cleaned up. If I reconcile my accounts, it’s less likely that I will have any negative numbers.
The other cleanup tip that I can share with you is related to having accounting knowledge. You want to make sure you have liabilities that are actually liabilities on the balance sheet. You don’t want to have things that are expenses showing up on your balance sheet.
We understand that many people don’t go into business to be accountants. If you’re worried you might have missed some cleanup we are happy to do a FREE review on your books. All you need to do is add me, John Briggs, as an accountant in your QuickBooks. Click the link below to see an easy to follow graphic to add me to your QuickBooks program.
We’ll do a free review and let you know what cleanup work would look like. We can also give you a quote if you would like our company to do that for you to make sure you nail this the right way. There is a risk that if you don’t clean up your books the right way and you miss items unintentionally, that will cause the IRS to think you’ve committing fraud. That’s bad.
In my opinion, what’s worse than the IRS thinking you’ve committed fraud is you are going to miss items that would reduce your taxable income!
Bottom line, make sure your books are really cleaned up before sending them to your tax professional. Let us know if you need help. Again, we’re happy to do the review for free. Just add me by following the steps in the graphic linked below.
And remember, the IRS sucks!
Remember, profit is a choice. Have the courage and wisdom to choose it.
John Briggs | Tax Genius
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