It's important to catch up with past due bookkeeping before tax season arrives - don’t let intimidation or overwhelm affect your tax filing preparedness. Keeping your virtual bookkeeping records up to date will ensure you’re IRS compliant and ready to file taxes.
The IAS Bookkeeping team specializes in virtual bookkeeping and is available as a resource if you feel professional bookkeeping services for small business or help with self-employed taxes would benefit you.
In the meantime, this step-by-step guide will help give you bookkeeping tips to help you deal with any virtual bookkeeping backlog.
Step 1: Collect your Receipts
Collect all receipts and invoices relating to business expenses for your bookkeeping records. Below are the types of receipts, bills, and records that you will want to search for:
Invoices from Customers
To ensure you have collected all invoices from customers for the tax year, review your customer accounts. You only need to send an invoice to customers if your business uses a cash-based accounting method. Your business may use an accrual accounting method - this means that you keep track of the sale at the time it occurs even if you haven’t received any cash.
You should review your vendor accounts to make sure they’ve been paid in full. You should have a copy for each vendor activity. If you don't have one, contact the vendor immediately to request one.
These bills include business activities that are still being performed in the closing period of your business to ensure that these expenses appear on your year end financial statement.
Check customer accounts for bad debt expenses. If a customer does not pay you for the work you have done, this can be written off as a bad credit expense. To deduct bad debt costs from your tax return you must prove to the IRS that the IRS could not collect the debt.
Bad debts are usually deducted from a business’ gross income to determine its tax income. You can claim bad debts using either the specific charge off method or the non–accrual experience method.
Get your out-of-date Bookkeeping Records Organized
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Step 2: Reconcile your Bank Accounts
You should reconcile all your bank accounts to identify errors in company bookkeeping records, self employment bookkeeping records or bank statements. To ensure that each account has the same balance, compare each transaction on your bank statement to the transaction in your company's virtual bookkeeping records.
To ensure the balance on your bank statement and your virtual bookkeeping records are the same, fix any discrepancies. It can be expensive to hand over accounts that have not been properly reconciled to your virtual bookkeeper.
Additional fees will apply if your online bookkeeper needs to do additional work to reconcile the accounts and correct your books. You can save your virtual bookkeeper time and money by reconciling your accounts before you need them.
Step 3: Separate Business and Personal Expenses
We advise our clients to keep their business and personal expenses separate. Combining personal and business expenses into one account is called piercing the corporate veil. This could lead to you being personally liable for the actions and debts of your business.
If you own a corporation, LLC, or LLC, and fail to separate your personal and business affairs, you could lose the protection provided by your company's organization. You could be personally liable for any business losses.
It can be stressful to manage personal and business expenses in one account. You will need to file taxes and do detailed virtual bookkeeping. Additionally, it takes longer to sort through business and personal expenses when they are all in one account. Separating your personal and business expenses is essential. The sooner you get it done, the better.
Step 4: Get Paperless
You can catch up on your bookkeeping while you are doing so. Make your life easier by transitioning to virtual bookkeeping. Use organizational tools like Notion or Google Drive to create digital records of important documents and receipts as you go through your paperwork.
Step 5: Get a Virtual Bookkeeper to Review your Expenses
You're probably reading this article because you want to do all virtual bookkeeping yourself. We hear you. This is often the cheapest way to do things.
However, we strongly recommend that you consult a professional virtual bookkeeper to review your books, tax deductions and other financial information related to your tax return before you file your taxes.
Virtual bookkeeping services are often more cost effective in the long term. Whether you need guidance with independent contractor tax backlogs or bookkeeping for small businesses, a certified professional bookkeeper can ensure all of your finances are IRS compliant.
A virtual bookkeeper eliminates mistakes and ensures you are claiming all deductions your business is entitled to. A virtual bookkeeper can speak on your behalf to the IRS and represent you in the case of an audit. For these reasons, it’s a good idea to establish a relationship with a virtual bookkeeper before you need one.
Contact our team today if you would like someone to handle your virtual bookkeeping backlog.