How to get your business income & expenses tax ready

Tax season is here. Having clean books is crucial. It ensures your tax experts have what they need to make sure your tax return is based on accurate numbers and so they can maximize your tax outcome.

You’ve probably heard the terms "getting your books in order" or having "clean books," but what do they mean? And how do I make sure mine are ready for tax time? For small business owners, being ready for tax time means making sure your financial records are up-to-date, accurate, and organized. 

We’re here to help guide you step-by-step through the process.

Step 1: Categorize your expenses 

If you are using accounting or bookkeeping software, an easy way to do this is to ensure that you’ve connected your business accounts. 

Take a moment to review your books to ensure all transactions are categorized correctly, such as for materials, office supplies, business travel, insurance, legal and tax prep fees, labor costs, advertising, etc.

Properly categorizing transactions makes it easier to identify what deductions you can or cannot take and makes tax time easier. 

Best practice is to maintain a separate account for your business expenses. This will help you avoid possibly missing deductible business expenses and will save you time in the future. 

Step 2: Check your bank and credit card statements

Take the time to check each business transaction in your books against your bank and credit card statements to ensure everything is accurate. You’re looking for errors and misclassified transactions. 

This is an important step to ensure you’re not under- or overstating your income or expenses. 

Step 3: Gather your receipts

Make sure to have a record of all your purchases in one place—this can be digital or physical—and can come from bank and/or credit card statements. The important thing is to be able to provide details on what you bought, when you bought it, and how much you spent.

The rule of thumb is to keep a record of any transaction that’s $75 or more. This can be for expenses like office supplies, business equipment, or materials. You may need them to verify your deductions. Your records can come from: 

• Canceled checks or other documents reflecting proof of payment/electronic funds transferred
• Cash register tape receipts
• Account statements
• Credit card receipts and statements
• Invoices

Step 4: Close your books

Once you’ve finalized your list of income and expense transactions, your books should be closed for the year so that you have your final numbers for your taxes and financial needs. Double-check your total income and deductions to make sure everything is correct. Now you’re ready to submit your books.