We've updated one of our most popular post for the 2020 tax year. NOW with Videos!
Get a jump start on preparing for tax time!
Today's Question: How do I know if I am ready for tax time? I use QuickBooks Online.
That’s a great question! The #1 way to save on taxes is to make sure you are accounting for all transactions. Don’t leave money on the table due to disorganization.
Answer: 1. First, you need to confirm that all income and expenses for 2021 are entered into your accounting system.
2. Once transactions are entered, reconcile all bank/credit card/loan accounts. After these are reconciled you should be confident that all transactions on your business accounts are accounted for in your system.
For details on how to reconcile accounts, check out this article on the topic.
3. If you are like many business owners, you had a time or two during the year that you accidentally used a personal card to make a business purchase. If this happened to you, now is the time to enter these transactions into your system.
4. Next, check the bank deposit window to make sure there is nothing sitting there from 2021 or prior years. If there isn’t, move on. If there is, the fix is based on the specific reason the transaction(s) is still there. Going over different scenarios right now could be too confusing. If you have this issue, it might be best to schedule a training call to have us look and help you identify the problem. We provide these calls in 30-minute increments, so it’s a small investment. (Get more details here.)
5. Next, review coding on all transactions, checking for consistency and accuracy. For expenses, you can run the ‘transaction list by vendor report’. You will need to customize the report in a couple of ways. First, change the dates to 01/01/2021 to 12/31/2021. Then, add ‘split’ to the rows/columns (this selection is found by clicking the ‘customize’ tab.) This will add the account/category to each transaction. Once you have generated this report, review by looking at the vendor name and the split column. In this step, you are determining if each transaction is coded properly. If a transaction is miscoded, click on the dollar amount to go into the transaction and change the account. You will review income in step 6. (See the screenshots AND the video below.)
On the above report, be sure to select the applicable date range. For tax year 2020, select 1/01/2021 to 12/31/2021.
To customize, first click on the Customize box.
Next, click on Rows/Columns
Then click in the box ‘Split’.
Play Video
6. Next, review your Profit and Loss statement. Use the dates 1/1/2021 to 12/31/2021. Under the ‘display columns by’ drop-down, select months. Look at the income accounts first and make sure everything is in its proper place. Then scan the rest of the report and make sure the category and amounts make sense to you. (See the screenshot and video below.)
For details on how to read financial statements, check out the article here!
Play Video
7. Finally, review your balance sheet. Use the ending date 12/31/2021. This report shows balances in the bank, credit card, and loan accounts; to name a few. Review each account balance to make sure it makes sense to you. If something looks off, review that accounts register to determine the reason. – After you have gone through all of these steps, your system should be ready for tax time!
And there you have it! If you have a question, let us know in the comments.
~ Brandon & Christi are successful business owners who enjoy traveling and making a mess in the kitchen with their two daughters.
The article is for informational purposes only and should not be construed as business, accounting, tax, or legal advice. Details are subject to change without notice.
Copyright © 2018-2022, Brandon & Christi Rains, Rains Group LLC DBA The Sensible Business Owner, ALL RIGHTS RESERVED
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Excellent post ever.
Educative and informative.
Thank you for sharing
Thanks Kelsey, I am glad you found it informative. – Christi
Very helpfull information
Thanks you for sharing