Bookkeeping is an often neglected task when preparing a tax return.   A lot of business owners often delay their bookkeeping until they realize that their record keeping has become entangled and couldn’t do anything more about it.

Bookkeeping makes preparation of financial statements faster and more accurate.  Financial statements like the profit and loss statements are the basis of schedule C in your tax returns. In addition, a balance sheet may also be needed in corporate and partnership returns.  

An accurate bookkeeping helps in tax planning.  With the interim financial statements on hand, tax preparers can easily project estimated tax liability, therefore, helping the taxpayers prepare the needed funds for tax payments and save on penalties.

Since the responsibility of proving the accuracy of tax returns rests on the taxpayers, a well and neatly maintained books of accounts is less likely to be audited and if ever audited, taxpayers can easily provide the needed substantiation for the audit.

Before starting the bookkeeping process, the business owner or the bookkeeper must gather, organize, and scan the documents and file them in a folder for future reference or audit. Next step is to gather all the income from all sources, breaking them down into different types if there is more than one.

For expenses, the usual types that must be recorded are as follows:

1. Advertising
2. Car and Truck Expenses
3. Equipment Expenses like Depreciation and Repairs
4. Independent contractors
5. Business Travels
6. Utilities
7. Payroll Expenses
8. Other Expenses such as Office Supplies and Bank Charges

An explanation through a memo for important details about the income, expenses, assets, liabilities, and equity may become a useful aid in substantiating your tax return entries and even for future reference. Properly categorized expenses can help you identify non-deductible expense for tax return purposes.

At the end of the tax season, the bookkeeper must be able to reconcile the difference between books of accounts and the tax returns which may be due to presence of any of the following: allowable or disallowable expenses, taxable and non-taxable income, or maybe due to the method of accounting used, that is cash or accrual.

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