As we near the end of the year many small business owners are not thinking about catching up on their accounting. A lot of business owners will wait until January and then catch up their accounting in order to have an accurate set of books for tax season. This is a mistake as I will show you shortly.
Many businesses have an accounting system and are “sort of” keeping the books, but in many cases several months have not been reconciled and if you asked them to pull up an Income Statement or a Balance Sheet the last accurate statements would be December 31st, 2014.
Here are some reasons why you should keep your books updated during the year:
- The Section 179 Deduction: This deduction allows you to deduct 100% of equipment purchases of up to $500,000 in the current year (provided that Congress and the President renew this for 2015), instead of depreciating in out over several years. But, if you don’t have accurate books you won’t know if it is even worth purchasing equipment before the end of then year. For example, if you are showing a large profit for the year it might be worthwhile to go ahead and purchase any equipment you might need in the foreseeable future. If, on the other had you are showing a loss, the Section 179 Deduction won’t help you.
- Avoid Quickly Putting Your Books Together During Tax Season: Inevitably, if you wait to update your accounting until after January 1st, you will feel rushed, not to mention stressed, trying to get your books finished for your tax return.
- Make Sure You Don’t Miss Any Deductions: By keeping your books updated during the year and working with a CPA you’ll know that you are taking advantage of every deduction. If you rush and try to quickly update and reconcile your books during tax season, chances are much higher that you’ll miss out on some important tax saving deductions.
- It Saves Time: Whether you do your own accounting or have a firm do it for you it is always much more time consuming to try to update your books after several months or a year has passed.
- Monitor Cash Flow: Without accurate books it is much harder to monitor your business cash flow. On the other hand, if you have an accurate set of books that show accounts receivable and accounts payable, you can simply pull up a report to see your cash flow forecast over a specific time period.
If you haven’t kept your books completely updated and reconciled or haven’t kept your books at all, contact my office and we can get your books completely caught up and accurate. This will give you peace of mind in knowing that you are ready for tax season and are taking advantage of every possible tax deduction.