18 Tax Prep Best Practices for Your Business
by A Team of Paro's Tax Experts, on Nov 30, 2017
Why is it that so many companies dread the end-of-year tax process? For many, it’s a scattered, painful, and overly time-consuming process: information isn’t organized in one central location and, often, companies aren’t quite sure what information they need to compile (no matter how many years they’ve been in business and paid taxes). Additionally, company leaders prioritize most other things over taxes so they push off anything tax-related until early March, not realizing they are missing crucial data that requires time and effort to compile.
And, where are your accountants and bookkeepers during all of this? We’ve heard time and again that clients feel their outsourced accountants and bookkeepers aren’t proactive and that they’re at the bottom of their finance team’s to-do list. If you have an in-house team and are still scrambling, ask yourself why: are your tools and processes outdated? Are you still using paper? Are you using technologies and apps that create efficiencies?
If any of this sounds familiar, our tax experts have compiled these 18 tax prep best practices to help you improve your processes throughout the course of the year so that your financial information is ready and easily accessible come tax time. And, for a more fulsome look at how to get ahead of tax season, download our End-of-year Tax Guide for Businesses.
Get ahead of tax season with these best practices:
- Improve internal communications between your bookkeeper, accountant, and department heads, with the ultimate goal of accessing financial information that will support strategic decisions.
- Ensure that your bookkeeper consistently applies good work habits and that all information is in order before it is turned over to an accountant to review; otherwise, you will end up paying a much higher hourly rate to a tax accountant to organize and correct what should have been handled already.
- Keep all accounts reconciled on a regular basis: bank, investment, loan, and credit cards.
- Have a bookkeeper record transactions on a consistent basis; relying on memory can result in the inaccurate categorization of expenditures.
- When your accountant sends back adjusted journal entries, make sure they get entered immediately.
- Make sure that the following items match:
- Your retained earnings should match those on the previous year’s balance.
- Your balance sheet should match your tax return.
- Your AP aging report should match accounts payable (if you use a separate software to track this).
- Your accounts receivable should match your AR aging report (if you use a separate software to track this).
- December 31st statements should match your trial balance.
- Update fixed asset schedules to track all activity throughout the year; often asset disposals are not recorded, and this complicates property taxes and accurate depreciation.
- Contact your tax accountant in October or November, and maintain consistent communication through the end of the year. With proper guidance, you will be much more likely to save money.
- Make sure your accountant is tracking important metrics on a regular basis, including quarterly financials, budgets vs. actuals, and other key metrics that determine your financial help like working capital, debt to equity ratio, etc.
- Don’t slack off; tax preparation is an important part of your company’s financial strategy.
- Avoid penalty and audit risks by keeping your quarterly tax filings and payments to both State and Federal agencies current.
- Create a quarterly and annual tax processes document that includes: contact information for go-to sources of information, methods of internal controls; communication expectations, specific deadlines for stages of preparation and for filing.
- Also ensure that your tax process details requirements related to the internal review of trial balances and other expectations that will reduce the volume of errors in quarterly and end-of-year tax returns.
- In addition to your bookkeeper and accountant, engage your department heads and employees in the expense report process.
- Don’t regard your budget as an annual task; use it to gauge and redirect your decisions throughout the year. Read more about the value of mid-year budget reviews.
- Engage external resources as needed to streamline activities and to capitalize on changing tax procedures.
- Use a structured resource (as in the checklist provided in our End-of-Year Tax Guide) to ensure that you are efficient in your preparation.
- Ask for help. It will be worth your sanity and will very likely save you money in the long term.
Change bad habits today!
We know some of these may not help this tax season, but the beginning of the year is the ideal time to set yourself and your company up for success for 2018 and beyond. Paro's bookkeepers, CPAs, and tax experts have helped hundreds of companies re-invent their back office processes and procedures to not only make tax-time a breeze, but to provide companies with consistent insight into their business throughout the year. Talk to one of our finance experts to see how we can help your business.
The following Paro freelancers contributed to this best practices list and to our End-of-year Tax Guide whitepaper:
Philip Wong has nearly 30 years of experience in Payroll Management and Payroll Tax and Compliance. He has worked in the public, private, and non-profit sectors, and his experience extends to small companies and startups. Philip holds an MBA and undergraduate degrees in Accounting and Finance. He is a native of Boston, Massachusetts, where he currently practices.
Shaan Afridi has five years of accounting experience, with a focus on business and individual income tax return preparation. He is a CPA certified by the State of California and a chartered accountant certified by the province of British Columbia, Canada. Shaan earned his degree from San Jose State University.
Ross Sumner a CPA in the state of Virginia with more than five years of experience in tax and accounting. In addition to supporting Paro’s clients in the professional services and real estate industries, he currently works for a small firm in Midlothian, Virginia. Prior to that, he spent two years at RSM (formerly McGladrey), so he has helped individuals and en tities of all sizes and needs in a short amount of time.