Bookkeeper Interests   11/30/2022

Bookkeeping Tips to Do Throughout the Year

By 360 Coverage Pros

Bookkeeping Tips to Do Throughout the Year

Bookkeeping is a crucial activity for tax-preparation firms. Here are some essential tasks to handle throughout the year.

As a tax preparer, you work with bookkeeping data to produce tax returns. You not only know how bookkeepers generate this information, but you may do bookkeeping for your own business. However, since tax preparation is your main business, here are some tips to help you stay focused on year-round bookkeeping.

Keep Financial Data Easily Accessible

Bookkeeping is about producing the information business owners need to make crucial decisions. To be useful, information must be readily available and up to date. For example, information about cash flow, accounts receivable and accounts payable should be accessible almost instantly.

Providing instant data requires continuously updating your bookkeeping system with new information. Here are just a few actions needed to keep your books current:

  • Documenting payments and expenses daily
  • Recording debits and credits
  • Generating and sending out invoices and processing customer payments
  • Preparing financial statements (balance sheet, income and cash flow)
  • Updating and balancing a general ledger
  • Inputting bank transactions into your bookkeeping system
  • Documenting payroll activity

Doing your bookkeeping with a computerized application, either stored locally or on the cloud, will guarantee easy access to critical financial data when you need it most. It’s helpful to make and keep a regular schedule when posting transactions. Do it in the morning when you arrive or just before you leave at day’s end. The timing is irrelevant, providing you stay on top of your entries.

Separate Business Finances from Personal Finances

It’s not a good idea to commingle your business and personal finances. Doing so will put your personal money at risk and lead to sloppy books. Also, commingling can make bookkeeping harder, increase the likelihood of errors and lead to potential tax problems.

The best time to separate your business and personal finances is when you first establish your company. Make a strict policy to separate the two and create appropriate bookkeeping accounts. However, it’s not too late to transition to a safer and less complicated bookkeeping approach if you’re still running personal money through your business bookkeeping system. But, best to get advice from an accountant before making the switchover.

Once you’re committed to separating your business and personal funds, here are some steps to facilitate your business-only bookmaking procedures:

  • Apply for an Employer Identification Number (EIN)– This is important, because it lets you avoid using your personal Social Security number on your business tax returns and other vital documents. Secure your EIN on the IRS website.
  • Establish a business entity– This involves formally creating a legal structure for your business as a limited liability corporation (LLC), C Corporation (C-Corp) or S Corporation (S-Corp). These legal entities will shield your business assets against litigant claims. A business attorney can recommend the best structure for your company and help you implement it.
  • Open business checking and savings accounts– To segregate your business and personal funds, you need somewhere to put your money. Establishing a business checking account and one or more savings accounts with a bank you trust will achieve that purpose and more.
  • Apply for a Data Universal Numbering System (DUNS) number– This refers to Dun & Bradstreet’s unique nine-digit identification number for your business. A DUNS number will help establish a credit history for your business that is distinct from your personal credit. A DUNS identifier is essential If you expect to apply for a business loan or line of credit.
  • Make your business the payer of all company expenses– Whether it comes to utilities, office space rental, insurance or store credit credits, always use your business name as the account holder. This will avoid third parties coming after you personally rather than the responsible entity— your business.
  • Monitor business use of personal resources– Document when you use a personal asset for business purposes (for example, your car or a portion of your home). This will not only provide an accurate picture of your business’ financial health, but it will also avoid tax complications.

Use a Professional Payroll Service

Many tax-preparation firms process their own payroll. They’re comfortable doing it and will probably keep doing so until a problem occurs. Other firms are keenly aware of how much time and effort go into paying employees, handling their tax withholdings and accounting for various paycheck deductions. For these firms, outsourcing payroll makes sense.

What are the advantages of hiring a professional payroll service? Here are some major ones:

  • Saving time– As mentioned, processing payroll is a complex task. Even with one employee, tracking the flow of employer funds into various payroll accounts can take a lot of time, something tax preparers don’t have. Outsourcing to a payroll provider frees up hours you can use for important tasks, such as tax return development, sales and marketing. The more employees you hire, the more time you’ll save using an outside payroll processor.
  • Avoiding mistakes– Preparing taxes is your core capability, not doing payroll. For this reason, it’s common for tax preparers to make payroll mistakes. Professional payroll experts do nothing but process payroll, so they are familiar with the nuances that can trip up non-professionals.
  • Maximizing cybersecurity– If you do your own payroll and store employee personally identifiable information (PII) on an internet-connected computer, you are one data breach away from disaster. Using a payroll specialist increases the security of your employee data, because the firm likely maintains a strong defense against cyberattacks and data breaches.
  • Assuring regulatory compliance– You need to account for employee deductions for local, state and federal taxes, as well as for federal programs such as Social Security and Medicare. Make a mistake here, and government scrutiny and penalties may follow. Many tax preparers opt to delegate this to a company that knows payroll compliance inside out.

Use Apps to Help with Bookkeeping Processes

Bookkeeping was one of the first occupations to adopt automation. Today, most professionals use bookkeeping support programs such as QuickBooks Online, Bench and others to expedite transaction entry and financial report development. Bookkeeping apps that integrate with major bookkeeping systems make the programs more robust.

There are hundreds of bookkeeping-support apps to make your life easier. Your choice will depend on your bookkeeping system and personal preferences. Here are a few to consider:

  • Expensify For producing expense reports
  • Hubdoc For managing document storage
  • Keeper (QuickBooks Online) For organizing bookkeeping procedures using checklists, client electronic portals and performance reports
  • Plooto (QuickBooks Online) For handling daily payments with control and data reporting
  • Rewind (QuickBooks Online) For facilitating backups, copying and restoring software as a service (SaaS) and cloud financial data
  • Loop For helping bookkeepers transact and make payments using up to five currencies, eliminating currency exchange costs

Research Tax Laws and Requirements

In handling your firm’s bookkeeping, you may encounter situations you don’t know how to handle. Learning how to research tax questions can save you time and money. But, be careful. Refer complex issues to a qualified tax accountant or attorney.

The first step is to frame the issue properly. Then, develop a list of keywords to facilitate online research. Your go-to tools include:

There are countless specialized resources beyond these five. Let the specifics of your question dictate which and how many additional resources you deploy.

Final Bookkeeping Tips

If your business handles cash transactions, always deposit them into a business or petty cash account before spending the money. This will create a record of the transaction, which will prevent accounting issues in the future.

As your firm’s bookkeeper, it’s essential you know what tasks to complete and reports to produce each week, month and year. Also, ensure your bookkeeping system is in balance, there are no bounced checks and you’ve paid bills on time. If you discover an error, fix it immediately.

By staying on top of your bookkeeping tasks, you’ll be ready to answer the main question all business owners ask: “How financially healthy is my firm right now?”

To keep it healthy, invest in professional liability insurance to cover your legal costs during client disputes.

Are you shopping for bookkeeper’s professional liability insurance? Consider the coverage available at 360 Coverage Pros. Premiums begin at $15.42 per month.