The BA Checklist To Prep for Tax Time
Breakaway advisors don’t do taxes.
So, that means anything to do with taxes is not our problem, right?
Wrong. Actually, the opposite is true.
As small business advisors, we build relationships and meet with our clients continuously throughout the year, not just at tax time. So, since their primary financial relationship is with us, and we know taxes are a big part of their financial picture, we’ve become experts at working with our clients’ CPAs and tax preparers.
To ensure a smooth handoff between a Breakaway advisor and the tax team, first and foremost we make sure we’re handing over a clean set of books. But what does that mean?
Questions to Evaluate Your Books
Do retained earnings roll forward from the prior year tax return?
Are distributions from the prior year closed out?
Do the balance sheet accounts tie to source statements?
Are there unexpected negative balances?
Are the bank reconciliations up to date?
Have you reviewed A/R and A/P aging for balances >90 days?
Did you confirm the inventory balance at year end?
Is payroll reconciled and ties to W-2s/941s?
Are transfers and card payments correctly accounted for?
Have you removed personal expenses from the P+L?
Don’t Forget About Record Keeping
While the checklist above is essential, our tax friends remind us it’s not enough to keep good books. If a client is audited, they will need to substantiate expenses–i.e. show the receipts and support.
Therefore, since we’re the ones providing them with financial support throughout the year, we make sure we’ve got our clients’ backs by reminding them to keep track of those logs and receipts. Our top tips:
We love Dext & Keeper: They integrate with QBO and Xero and have great phone apps to capture receipts in real time.
QBO and Xero both allow attached files to retain support for transactions.
Travel and meals require extra support:
Purpose of expense
People present for meals
Mileage log (even better: make sure the mileage log matches with calendar events)
Document justification for amount of salary for S-corp owners. We love RC Reports because it provides everything needed to substantiate compensation on an audit.
Honesty is Key
Most importantly, remember that if you’re an accountant who doesn’t do taxes (like us)--you don’t have to be a tax expert! Honestly saying “I don’t know” when you don’t is a mark of professionalism and can help build trust with clients. Watching out for your clients throughout the year by keeping clean, accurate books with one eye on tax time is an essential part of helping your clients achieve their financial goals.
To learn more about Breakaway, visit breakawayba.com.
