Good bookkeeping practices can give you a comprehensive, accurate picture of your business’ health. However, poor bookkeeping practices not only make it hard to assess your business’ current status; they can also be a tax liability.
With the right tax and bookkeeping services, you can minimize your tax liability while remaining in full compliance with all governmental regulations. In this guide, we’ll explore how bookkeeping relates to tax preparation and how you can prepare for your next tax year.
Bookkeeping’s Role in Preparing Taxes
Tax and bookkeeping services are not the same, but they overlap considerably. Bookkeeping is the process by which your financial records are maintained. This means that your business’ bookkeeper is in charge of keeping track of your bills, cash flow, payroll, and any other income and expenses related to your business.
Your business is obligated to pay taxes based on your overall revenue. Likewise, some of your expenses can be deducted from your tax bill, reducing your overall tax liability for the year.
In both cases, you’ll need access to clean, accurate financial records to properly assess the taxes you owe or to take advantage of the right deductions.
Bookkeepers can plan ahead for deductions by keeping careful records, saving receipts, and more. Then, when it’s time to prepare your business returns, this data can be readily used to complete the necessary forms and streamline the process by which you file taxes.
That is why businesses are increasingly turning to online bookkeeping providers , as these outsourced solutions provide accuracy and confidence that your books are clean, accurate, and up-to-date.
This makes it easier to plan for tax season so that you can prepare taxes in a way that’s favorable for your company while remaining in compliance with all tax regulations.
What Issues Can Poor Bookkeeping Cause?
If your books are inaccurate or behind, you’ll likely be in the dark when it comes to your cash flow — not to mention every other part of your business’ financial health. But it also creates an even bigger problem when it comes to paying taxes.
Poor bookkeeping can create tax problems in at least two ways. First, inaccurate books make it impossible to assess the amount of money that your business owes in taxes. If you file with inaccurate numbers, you could be facing major problems later in the form of penalties, audits, and more.
For example, you might file returns based on your current income, but discover later that your income was actually much higher than you’d indicated on your tax forms. At minimum, this means you’ll have to invest time making the necessary corrections. But it could also leave you vulnerable to late penalties or other financial liabilities due to the initial error.
Secondly, inaccurate bookkeeping makes it harder to plan for tax deductions. Without a clear record of your business’ deductible expenses, you won’t be able to claim certain expenses on your tax return. You’ll be forced to pay more than you would if you’d been more stringent with your record-keeping.
How a Bookkeeping Service Can Make Filing Your Taxes Easier
Business owners looking to prevent these errors often turn to a virtual bookkeeping service to provide tax and bookkeeping services. Many third-party providers, like Visory, offer bookkeeping for professional services that can help you to keep your books up-to-date. They can also help you plan for tax season accordingly.
Bookkeepers are great at keeping track of your day-to-day expenses and can be a real help when tax time rolls around. But an accountant can analyze the books, look for tax credits, and prepare tax reports.
At Visory, we understand that many business owners find the cost of these professionals to be prohibitive for their business. That’s why our online services are designed to provide expert-level financial services at a fraction of the cost of an in-house financial team.
A bookkeeping service can help you prepare and file your annual business taxes without costing a ton of extra money. When you outsource your accounting needs, you’ll gain the confidence that comes from knowing your tax liability has been handled with skill and care.
Avoid Tax Liability with a Trusted Bookkeeping Service
The best tax and bookkeeping services can keep your business running smoothly both in and out of tax season. After all, a thorough understanding of your business’ financial health can help you to hone your strategy for your business’ future.