How to Catch Up on Your Bookkeeping: If you have fallen behind with bookkeeping for your business, the time to catch up is now. When you do not have your records in order, you will not be sure of the financing and the correct numbers that accurately reflect the business. Also, you risk triggering an audit from the IRS. Moreover, maintaining your books properly can help you secure financing and provide you with an accurate reflection of your business.
Gather Important Documents
The first step is to determine just how far you have fallen behind. Whether you are only a couple of months or several months behind, you need to know just how far back to go. Once you know the period of time you are working, start gathering up all of your customer invoices, debt records, and business expenses.
The easiest place to start is usually with customer invoices. Most businesses will have copies of the invoices they sent to customers either saved on their computer or as a physical copy in a dedicated file. Debt records are kept for anyone who owes you money that you have not been able to collect. It is important to keep an accurate account of such debts so you will be able to include them in your taxes.
As a business, you can deduct certain expenses from your taxes. Therefore, you need to keep up with any receipts for purchases related to your business so you can list them accurately on your taxes.
Go Over Your Bank Statements
The next step is to reconcile bank statements to ensure that all income and expenses are correct in your accounts. If you find that your records do not match your statements, then you have likely misplaced a receipt or invoice. Take the time to track down all payments received or sent to fill any gaps you may find.
Ensure All Personal Expenses Are Separate
While most businesses will have a separate account for their expenses, independent contractors often find it easier to maintain a single account. If this is the case, take care to ensure that all business and personal expenses are identified correctly on your bank statements. Erroneously claiming a personal expense as a business expense could cause harsh penalties from the IRS.
Organize and Digitize Your Records
For any records that are not already in digital form, take the time to scan them into a designated file on your computer. This will make it easy to find the records you need and keep them indefinitely for future review.
Never rely solely on digital records, however. Keep all of your receipts and tax records for the maximum amount of time recommended, which is typically seven years. Then, your oldest files can be shredded each year, as long as you keep a digital copy.
File Any W-2s, W-9s, and 1099s
If you are an independent contractor or sole proprietor with no subcontractors or employees, you can skip this step. Otherwise, you will need to file these tax documents.
If you paid a subcontractor over $600 in the last year, you need to file both a W-9 and a 1099-MISC. A W-9 is a request for the subcontractor’s information and the 1099-MISC goes to the IRS to account for the payments made.
If you have any employees, you need to file a W-2. This will show their gross income and any tax deductions.