With the tax season almost right around the corner, businesses of all scales are frantically preparing to circumvent the complexities of tax filing.
Is your end-of-year bookkeeping checklist in order? Whether you’re helming a small business or overseeing a major enterprise, being familiar with the nuances of year-end tax planning and filing can really ease the burden on your financial health.
Here’s how to prepare for a smooth tax season in eight easy steps:
1. Reconcile your Bank Accounts
The process of reconciling business checkbooks is one which needs to be done at the end of the year – and that’s because it helps you tally your records with what your business bank records show.
Start by comparing your internal ledger with your bank statements.
Keep an eye out for discrepancies, such as omissions which could lead to losses, fraud, or other nagging issues, if not recorded properly.
Ensure all your credit card bills are paid and tally them with your business expenses to check for oddities.
2. Review Receivable & Payable Accounts
One of the most important things to do before closing is to check the accuracy of your:
Accounts receivable (money which others owe you).
Accounts payable (money owed to others).
Check if there’s any monies which haven’t been received yet.
See to it that all bills have been accurately recorded.
Think about whether you want to write off any bad debts which are unlikely to be settled.
3. Run a check on Employee Payroll and Expenses
Payroll is such an important part of end-of-year bookkeeping, it cannot be stressed on enough!
Ensure that all wages, taxes, and bonuses have been recorded properly. Additionally:
You want to check that your payroll taxes are all withheld and paid.
See that employee benefits like retirement contributions or health insurance, for example, are accurate.
Review and adjust accrued payroll expenses if need be.
4. Assess Inventory Levels and Adjust for Valuation
Do you run an enterprise engaged in stock sales? You might want to rethink your strategy as the end of the year is upon you. If you don’t count inventories correctly and accurately or fail to value them properly – you may inadvertently end up posting the wrong figures on your balance sheet. These can have a devastating effect on your taxes and future financial planning.
It may sound like a cumbersome thing to do but performing a physical inventory count will work in your favour.
Look for and adjust any discrepancies between your actual stock and records.
Reassess your inventory value using whatever suits you (FIFO vs. LIFO).
5. Get ready for Tax Season!
Recent documents like invoices, receipts, cancelled checks, etc. need to be carefully sorted to prepare for tax season, in addition to checking if all deductions have been claimed. So:
Review all deductible expenses and categorise them accordingly for easy tax filing.
Gather every important piece of necessary document, such as receipts and other legal documents
Work with a professional tax consultant so that you have the appropriate strategies in place when the time comes!
6. Review Financial Statements to ensure Accuracy
It’s always a good idea to quickly go over your financial statements (cash flow, income statement, and balance sheet) before closing your books for the year. Some key areas you want to have a look at are:
The accuracy of the entries on the income statement
The balance sheet correctly reflecting assets, liabilities, and equity
The cash flow statement being consistent with your business operation activities
7. Close your Books
Once you close your books, you would have built a solid foundation to continue on in the next financial year. Make sure you:
‘Lock out’ all accounting periods so as to prevent post-close adjustments.
Verify that all the year’s transactions have been recorded properly.
Backup and archive all your records for easy reference.
8. Getting ready for Next Year
Now that we’ve run through a detailed checklist for end-of-year bookkeeping, we can easily establish a revised or fresh financial plan, in addition to having strategies in place for any changing regulations and/or tax laws.
At this stage, you’d want to:
Set fresh financial goals based on the previous year’s performance.
Come up with a budget and cash flow projection for the new year.
Adjust business strategies and financial operational stance as required.
For a more in-depth understanding of how to fully prepare yourself for end-of-year bookkeeping, speak to one of our expert tax advisors now.
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