Tax season is approaching - at least in the US and Canada - and business operators are faced with the daunting task of getting paperwork ready to file their tax claims.  Many of us will also be closing our business year.

When you set up an accounting cycle for your small business, you are asked to define the date at which your business year ends. You might have chosen December 31 to coincide with the western calendar year, or you might have selected another date -- possibly one that coincides with the tax season in your country of residence. 

The work you do in preparation before meeting with your account will reduce your accounting fees.  If you practice the “shoe box” method of bookkeeping—that is, if you bring your accountant a shoe box full of receipts, cancelled checks and other papers and say,  “Go for it,” then you can expect to pay a healthy accounting fee.  Sorting through your records takes your accountant even more time than it will take you. You might remember that the faded, almost illegible receipt from a stationery store is for office supplies that you purchased, but your accountant will have a harder time figuring it out. And you are paying for that time!

At year end, you can expect your accountant to:

1.  Verify your bank reconciliation. This involves comparing your bank’s records with your business records and explaining any difference that exists.  If you have reconciled your bank statement on a monthly basis, the year-end bookwork and resulting accounting fees are greatly reduced. If your accountant has to reconcile twelve months of bank statements, expect to pay for her time.

2.  Assess your Accounts Receivable, Accounts Payable, Accrued Wages, and Accrued Taxes and make appropriate adjustments.

3.  Assess depreciation. When you purchase a capital asset (such as a vehicle or computer) you may not be allowed to claim the full expense in the year that it is incurred. Your country’s income tax legislation will stipulate the yearly percentage of the purchase price that can be claimed. Your accountant will assess this depreciation and enter the figures accordingly.  Be prepared to provide sales receipts for capital expenditures.

4.  Assess your Taxable Income for the year and review expenses for allowable deductions.  The two categories of expenses most likely to trigger an audit are travel expenses and entertainment expenses. Perhaps this is the category where business operators are most tempted to become a little “creative.”

5.  Assess your personal taxes for the year.

6.  Consider options for saving money on taxes and discuss those options with your accountant.

7.  Finalize Taxes Payable.

8.  Close the Income Statement for the year. This means that the profits retained by the business are transferred to the Equity category on your Balance Sheet.

9.  Prepare the updated Balance Sheet for the Year.

If you have been regularly using one of the accounting software packages for your bookkeeping, at least some of these functions will be generated automatically. Your accountant’s time requirement will reduce accordingly.