Bookkeeping: The Little Things that Make Tax Preparation Easier
As a business owner, you have a plethora of things on your plate, from devising a business plan to hiring employees, negotiating with suppliers, and overseeing financial transactions, not to mention handling the budget and ensuring excellent customer service. However, the most dreadful part of running your own business might be preparing and filing your annual tax returns and ongoing bookkeeping.
The more organized you keep your books, the less cumbersome would be your tax preparation process and less likely to result in any surprises. As the backbone of every business, bookkeeping helps track your business’s financial transactions, enables you to develop a budget, and above all, keep your business organized. Maintaining accurate books and records saves you from the immense frustration associated with some aspects of running your business while giving you confidence about your business’s financial position.
In a nutshell, proper bookkeeping maintains your business efficiency, helps you make informed business decisions backed with accurate financial records, and protects you from unwanted exposure to various financial and audit risks.
This article will walk you through accounting and bookkeeping’s critical benefits and how they help you with tax preparation for your small business.
Why is Bookkeeping Critical for Tax Preparation?
Regardless of your industry or company size, it is indispensable to maintain accurate bookkeeping for many reasons. Here are some reasons why:
Smoothen the Tax Preparation Process
Proper bookkeeping provides quick access to financial statements at any time, enabling you to predict tax outcomes accurately. Up-to-date books translate into a stress-free tax season because your books contain tax-ready financial statements, trial balances, and detailed notes to ensure seamless execution of the tax preparation process.
Adherence to tax laws is critical for small businesses and large corporations to avoid any undesirable consequences in the long run. And while it may not seem enjoyable to business owners, they must file their taxes at the end of the tax year. You will be less anxious if you have all the financial information ready for tax preparation, and proper bookkeeping makes the tax preparation process less arduous and intricate.
If you own a business, you may have a good understanding of a myriad of strict federal and state payroll tax regulations and rules your organization is required to follow. Failure to follow these or making late payments of payroll taxes translates to severe penalties.
Moreover, you are required by law to file the payroll tax return every quarter, paired with government W-2 forms that you need to give to your employees at the end of the year. Sound bookkeeping practices enable you to comply with all these state and federal payroll rules, while poor bookkeeping can lead to catastrophic outcomes for your business.
Bookkeeping Helps Small Businesses Strategize for Tax Preparation?
Businesses have to track down plenty of information for tax preparation purposes, and it may feel overwhelming, but appropriate bookkeeping makes the process smooth and seamless.
Itemize Business Income & Expense Information
With adequate bookkeeping, you keep all your income and expense information organized and up-to-date. The data relating to allowable deductions, such as business expenses, financial documents, check registers, canceled checks, credit card statements, and bank statements, are also kept organized through bookkeeping.
Keeps Your Accounts Separate
Proper accounting and bookkeeping enable you to keep all personal and business-related accounts separate and help you prepare the tax-related processes aligned. With the acquired information, bookkeepers can make tax adjustments and help ensure your books are organized and ready for tax time.
Uncover Additional Deductions
Proper organization of your organization’s financial statements and records can help you or your accountant uncover additional deductions you may not know even existed. Understand that small business tax deductions are crucial to reducing your tax liability because doing so can reduce your overall taxable income. With proper bookkeeping and accounting, for example, you can provide required documentation to the IRS in the event of an audit of certain deductions.
Bookkeeping Helps You Understand Business Performance
The financial position of your organization reflects its success and failure. This is where bookkeeping enables you to evaluate the performance of your business periodically. Producing a financial statement becomes much easier when you have the correct data for analyzing variances against budget and updating your calendar year forecast.
Bookkeeping enables you to devise and implement data-driven approaches, increasing profits and reducing risks. On the other hand, poor bookkeeping can give birth to many problems, and your business can lose valuable tax deductions if you fail to document specific business expenses.
Makes Cash Management Easy
Cash is the keystone for any business’s growth. However, managing cash flow is not an easy task, and the cumbersome and complicated processes associated with this can overwhelm you. With appropriate bookkeeping, you can stay on top of accounts receivables, paying invoices to vendors and suppliers promptly, and generally making sure your business is generating enough cash to operate, invest for future growth, and generate profits for you, the business owner.
Allows Business Owners to Make Quick Business Decisions
The availability and access to real-time information about your business’ financial position will give you the confidence to react swiftly and effectively to changes in the market and business arena. Time is the of the essence in today’s fast-paced business environment, especially for small business owners. Having accurate financial information will enable you to make decisions quickly to develop solutions to problems.
Is It Essential to Hire a Dedicated Bookkeeper?
Obtaining professional bookkeeping services can help you keep business financial records ready for tax season. The tax code can be intricate, and even the most basic deduction can have certain rules and nuances that need to be assessed for your specific tax situation. A professional bookkeeper is proficient with all tax-preparation processes and protocols, ultimately helping your business prepare well for the your success and the upcoming tax season. Unless your role within the company is to manage the financial operations, your focus should be on growing revenue, satisfying customers, and developing new strategies for your business – not spending time on bookkeeping throughout the year or the tax preparation process.
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