Here comes the new year, time to set exciting goals and resolutions. The parties wind down, and the kids (finally) go back to school. You're so excited about all the goals you set for your business for the new year. But being tax ready is not on your to-list.
Valentine's Day comes and goes, and then St. Patricks Day. And then you do a silent scream. You see the date on the calendar.
You can't run, and you can't hide. It's there, every year, the same month and almost on the same day.
Ok, that was a bit dramatic.
Taxes don't need to be big, hairy and scary. They can be easy. I promise! And you can be tax ready in no time.
HOW on earth can taxes be simple is a question people ask all the time.
It starts with a small action each week or each month. Small steps can take 30 minutes or less.
What is this?
Update your bookkeeping software!
Yep. That's all it takes. Getting ready for taxes doesn't need to take hours of work in January. If you take the steps below each month, you'll be ready to prepare your taxes in February!
Keep in mind you have to wait for all the W2’s and 1099’s to be sent. All forms will arrive by mid February. Putting you in a perfect place to prepare and file your taxes right away.
Add all your bank transactions to your bookkeeping software, called accepting the transactions into the register. Make sure all your business accounts are connected to your software.
Reconcile each bank account every month, including PayPal and Stripe. Yes, these are technically bank accounts and should be on your reconciliation list like your other bank accounts. Don't forget there are fees to be recorded.
Review each expense bucket. The "buckets" live in the chart of accounts and is how you categorize your expenses. You want to make sure you have added your transactions to the correct buckets.
Review your income buckets (also in the chart of accounts). If you have more than one product or service, do you have the income in the right place? You need to know where your sales are coming from. Don't forget any affiliate income; it needs a bucket too.
Run financial statements. After you have completed the four steps above, the final step is to run month-end financials. These consist of your balance sheet and profit & loss (P&L), also known as the income statement. They need to balance!
If you do these five steps every month, there are only two things left at the end of the year.
1. In January, after you've received December's bank statement and all your accounts are reconciled: review.
Review each of your expenses and income buckets one more time. Once your taxes are complete, it's a no-no to change anything from the year before.
2. The last step is to run year-end financial statements, review them. Make sure they are in balance. Once you’re done, hand them to your tax accountant. Easy peasy.
Keeping up with your bookkeeping every month will make getting ready for taxes a breeze. No more January panic and rush to update your books.
So start NOW! Close your January books and start updating February. Set a calendar reminder or did what I do: have a Financial Friday with a checklist of what you need to do.
TIP: Spending 10-15 minutes a week updating your books will keep you in the know about your business. And you will spend less time at month-end. Eliminate the scramble!