Bookkeeping Essentials for Smooth Tax Filing

A tax preparation professional, such as a CPA, may be exponentially more qualified and knowledgeable when it comes to navigating the tax code, but no matter how good they are, they aren’t magicians. In order to get the most mileage from your relationship with a CPA, it’s essential to have your bookkeeping organized and complete before you begin preparing your tax return. Follow these five tips to help the tax filing process along when April rolls around:1. Implement an efficient, organized bookkeeping system from the beginning.

April 14th is a bit late in the game to start getting organized. By coming up with a day-to-day system for organizing your transactions and finances from the beginning, it’ll make for a much less hectic time down the road. Instead of shuffling through stacks and stacks of papers, keep a spreadsheet or folder that you can simply forward along to your accountant when it’s needed.

2. Save everything.

After ringing in the New Year, financial institutions will start mailing you pertinent forms to your tax filing. Keep these safe in a specific folder or process them right away. Likewise, plan ahead throughout the year and keep anything that might be essential when it comes to filing your taxes (i.e. receipts for charitable donations, insurance papers). If you lose these important documents, it’ll take a lot of legwork to get them replaced. Save yourself the trouble by hanging on to everything that might be needed for taxes.

3.  Back it up.

Fires, break-ins, hard drive crashes – these can all spell disaster for your bookkeeping if you don’t have a back up system. Keep hard copies and paper records as well as digital backups of all your important documents and be sure to backup your master spreadsheets periodically.

4.  Create a clear audit trail.

Set up a system for monitoring daily, monthly, quarterly, and yearly transactions:  for example, decide what financial processes you will use like balance sheets, bank statements, monthly profit and loss statements, and so on.  That way, if there are ever any discrepancies, you can  quickly go through various records to finding the missing figures.

5.  Set up a system for calculating income and expenses.

For example, what criteria will you use to work out gross and net profit, and how will you differentiate fixed costs like rent, electricity, and salary from variable costs like advertising, commissions, and petty cash? To answer questions like these, you may want to talk to a CPA ahead of time so everything will be in order when it comes to file.

Essentially, then, you want to create not only a balance sheet as part of your bookkeeping but also systems for storage and retrieval of financial information.  By developing a smooth bookkeeping system you not only make it easy for the tax preparer but you also avoid getting into trouble with the IRS for accidentally losing information that could be misconstrued as an act of or fraudulent bookkeeping for the purpose of tax evasion.  Bookkeeping is more than a shoebox stuffed with receipts and miscellaneous records.

John Huddleston
Seattle CPA  

John Huddleston

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. Since 2002, he has owned his own small business, Huddleston Tax CPAs. He is a graduate of Washington State University and the University of Washington School of Law.