Get your books cleaned up now or spend your audit sweating bullets.
It’s everybody’s favorite time of year! Tax Time! Cue the crickets…
Okay, okay, it’s likely the most dreaded time of the year. We check the glove box, the dashboard, purses, and wallets for crinkled-up receipts, barely legible from sitting in the sun. We grab every spare paper, statement, and invoice, throw it all in a shoe box, and head for the accountant’s office. Time to pay the tax man!
Do you have any idea how much you’re going to owe in taxes? Do you have a clue how much you actually netted this year after all expenses? Did you FIND all of your receipts so that you could write them off and take deductions? What business strategy were you able to put together from staring at the pile of receipts hanging out on your dashboard? If I were to wager a guess, I would say your strategy looked something like this:
Logs into online banking. Thinks to self: “Cash in the bank account? I’m set!”
That’s not a strategy. That’s flying by the seat of your pants.
It’s common for me to get calls from tax preparers during this time of year, asking if I can repair, rebuild, or start a new set of books for a business from scratch. A good tax accountant is going to look at what you give them and make sure you are being compliant. It’s hard for them to do this if they can’t rely on the data you hand them. Even if you use software like QuickBooks, unless you know some basic accounting (ie: what needs to go where, when and why), you’re going to mess that up, too. Not only do they not have the time for these clean ups, but CPA’s will also charge you at their hourly rate – I’ve seen upwards to $300/hour, just to do your overdue or bad bookkeeping. Yikes.
Even worse, if you file your taxes based on incorrect data and are audited by our friends at the IRS, they can make you amend your returns and can look at up to seven years of prior returns. If they find errors, they will make you rebuild. Not only will you likely owe additional taxes, but they’ll have the pleasure of tacking on fees, interest, and penalties for late payments.
I get it, taxes are no fun and minimizing what we have to pay is what we all strive to do. Under-reporting income or attempting to write off personal bills as business expenses, however, is very bad for business. Conversely, you may have a slew of expenses not even recorded in your books! You could’ve actually owed less!!! You can’t possibly make good decisions for the future of your business on faulty data and you certainly won’t have an accurate picture of what your business is worth when it comes time to sell.
If any of this sounds like you, please know that a proactive approach to cleaning up the mess and correcting your books will go a long way in the eyes of the IRS, especially if you tackle the problem before they force you. No one wants to pay taxes – but I can safely say I’ve never seen anyone smile while writing a check for penalties. Schedule an appointment with us if you’re ready to get cleaned up!
Kristy Monahan is where the buck stops at Dynamic Bookkeeping. In addition to cleaning up books, she can be found uber-ing children to their extracurriculars and sipping on wine (but never at the same time). If you have a shoebox filled with receipts, if you are freaking out, or if you just need a sanity check on your books, drop her a line at firstname.lastname@example.org.