Whether you’re filing business taxes, seeking outside investment, or just trying to streamline your company’s finances, accurate bookkeeping is crucial to your success. Without a clear record of your company’s income and expenditure, you’ll struggle to file taxes on time—and you risk incurring tax debt.
But what should you do if you’re already behind on your bookkeeping this tax season? How can you get back on track and avoid IRS penalties or cash flow difficulties? Well, while every business is unique, here are seven steps any business owner can take to manage the backlog.
1. Collect Supporting Business Documents
First, gather all relevant records to show your transactions for the business year. These are the documents that prove, for example, the goods you bought and sold, your business expenses, and where your money comes from.
The exact documents you’ll need depends on your business. However, the most common supporting documents you’ll need for bookkeeping are:
- Bank Statements: Bank statements are a good place to start, but you should still collect proof of each deposit and withdrawal.
- Receipts: These include invoices, cash register tapes, and deposit records.
- Asset Records: Records showing if you bought and sold business assets, and proof of annual depreciation.
- Expenses: Credit card receipts, invoices, account statements, and proof of payments to show what costs you incurred.
- Employment Records: Payroll and other records of employment for current and past employees.
Be sure to categorize your income and expenses to help streamline your tax filing. If you need help, our team of experienced tax attorneys and accountants can take this off your plate!
2. Review Income and Expenses
It’s crucial that you check to ensure your income and expenses, such as customer invoices and business expenses, are up-to-date.
- Check if you have sent invoices for payments received or amounts outstanding.
- Determine if customers have paid you in full. Chase outstanding payments.
- Write off bad customer debts if necessary, but be prepared to show the IRS that you’ve taken reasonable steps to collect the debts.
- Check that you’ve paid all vendors in full and have a record for each payment made.
- Tally up business expenses so you can claim deductions where possible. Make sure you have receipts, or records, to prove each expense.
- Be sure to separate business expenses from personal ones so they’re not confused when paying your tax bills.
3. Evaluate Bank Statements
Next, compare your bank statements to your accounting records. Do this for each company bank account you have. The transactions—and balance—of each account should match the figures from your accounting records or online software. If they don’t, then identify the errors so that everything squares up.
4. Confirm the Taxes You Pay
It might sound obvious, but make sure you know which taxes you must actually pay! The most common types of business taxes include:
- Income tax
- Self-employment tax
- Estimated taxes
If you’re unsure which taxes you are expected to pay, then don’t delay seeking legal advice. Otherwise, you risk incurring penalties for failing to file the relevant tax returns or missing payment deadlines.
5. Collect Relevant Employee and Contractor Tax Forms
Do you have employees or hire contractors? Then you’ll need to file certain tax forms—specifically, Form W-2 and Form 1099-NEC.
- W-2: You must file a Form W-2 for every employee on your payroll.
- W-9: If you paid a freelancer or contractor more than $600 in the financial year, then have them complete a W-9 and return this to you. It’s wise to collect Form W-9 before the work begins.
- W-8BEN: This form is similar to W-9, but it’s used for contractors outside of the United States.
- 1099-NEC: This form is how you track payments made to non-employee contractors. So, once you have the completed W-9 or W-8BEN form, you can file Form 1099-NEC using the details provided by the contractor.
6. Check if You Can Claim Credits or Deductions
Now is the perfect time to check whether you can reduce your business tax liability. One way to do this is by applying for any relevant credits or deductions you’re entitled to. While eligibility varies, common credits you might apply for include:
- Employer-provided child care credit
- Fuel Tax Credit
- Work Opportunity Tax Credit
- Small employer pension startup costs
Deductions you might consider claiming include:
- Business interest deduction
- Home office deduction
- Qualified Business Income (QBI) deduction
There may be other credits or deductions you can claim, depending on your business structure.
7. Get Professional Advice
If you fall behind on bookkeeping, you risk missing key tax filing deadlines. Or, if you’re rushing your books to catch up, you could accidentally underpay IRS taxes. Missed payments—and underpayments—can lead to significant financial penalties.
However, there’s good news. Our experienced Chicago tax lawyers can help you get back on track, whether this means negotiating with the IRS or considering alternative business structures. So, if you’re struggling with bookkeeping and back taxes, give Gordon Law a call to see how we might help.
How Do I Avoid Falling Behind Next Year?
Once you’re back on track this tax season, it’s crucial to think about how to avoid falling behind again next year. So, here are some tips to get ahead of your bookkeeping going forward.
- Know your tax deadlines. Ensure you know your key tax filing dates so you have clear goals to work towards. See our Self-Employed Tax Guide for more information.
- Maintain a routine. Set aside a regular time slot to update, review, and manage your financial records.
- Consider automating tasks. Some tasks, such as payroll, can easily be automated through bookkeeping software. You might find this especially helpful if your business grows and your books become more complex.
- Outsource your bookkeeping and accounting. If you’re struggling to keep up with your books, it’s helpful to outsource your accounting to a dedicated accountant. An accountant can also ensure you make timely estimated tax payments, file all tax forms on time, and maximize your tax savings throughout the year.
Worried About Business Taxes? Contact Gordon Law!
From chasing invoices to checking your payroll, bookkeeping can be stressful. And when you’re also trying to stay ahead of your tax returns, you might feel overwhelmed. That’s where Gordon Law can help. Our experienced attorneys and accountants can help you with all aspects of your business, from tax planning to contract law. We can give you the insights you need to take control of your business accounts, reduce your tax liability, and avoid IRS debt.
To learn more about how we can help, call Gordon Law now or leave us a message online.
