1. Keep Personal and Business Bank Accounts Separate
Keeping your business financial activity separate from personal finances is crucial for organized bookkeeping. Opening a dedicated business checking account simplifies the reconciliation process and streamlines financial statement preparation. If personal expenses are inadvertently paid from the business account, they should be categorized as “owner draws,” which is recorded under equity.
2. Choose the Right Accounting Software
Investing in accounting software is essential for ensuring accurate financial statements at year-end. Utilizing software for bookkeeping can reduce the risk of errors, automate bank feeds, and simplify financial reporting. Popular options such as **QuickBooks Online** and **Xero** are highly recommended for small businesses and contractors due to their user-friendly interfaces and robust features.
3. Reconcile Your Bank Activity Monthly
Monthly bank reconciliation is a vital step in maintaining clean financial records. Follow these steps to reconcile your bank statement with your bookkeeping:
1. Obtain your final bank statement at the end of the month.
2. Compare the ending balance in your books to the ending balance in your bank statement.
3. Review transactions in your books and compare them to bank transactions to ensure accuracy.
Using software like **QuickBooks Online** allows for the establishment of bank feeds, which automatically enter bank activity into your accounting system, simplifying the reconciliation process.
4. Track Business Vehicle Mileage
To maximize deductions, track your business vehicle mileage accurately. According to the 2021 Instructions for Schedule C, you can deduct **$0.56** for each business mile driven, in addition to any parking fees and tolls incurred during business activities. Maintain detailed records that substantiate the date, purpose of the trip, and mileage driven to support your deductions during tax preparation.
5. Save Your Receipts and Invoices
Retaining receipts and invoices is essential for classifying expenses correctly in your bookkeeping system. Scanning or photographing receipts and storing them digitally can provide backup copies for future reference. If you reconcile bank statements monthly, these documents can help you remember the purpose of each expense. Additionally, organized documentation is vital for substantiating claims in the event of an audit. The IRS generally allows audits for up to three years, so keeping invoices organized by month and year on your computer is a smart practice.
6. Pay Estimated Taxes
Avoid underestimating your tax obligations by setting aside sufficient funds for estimated tax payments. According to **Publication 505**, individuals—including sole proprietors, partners, and S corporation shareholders—are typically required to make estimated tax payments if they expect to owe $1,000 or more when filing their return. The IRS expects payment of the lesser of 90% of the current year’s tax or 100% of the previous year’s tax. Consult your tax preparer to determine if estimated tax payments are necessary for your business income and to calculate the appropriate amounts.
Summary
Implementing these bookkeeping strategies can simplify your financial management and help you stay compliant with tax requirements. If you find yourself overwhelmed or unsure about any aspect of your bookkeeping, don’t hesitate to reach out for assistance. At Bullseye Bookkeeping, we’re here to provide expert guidance tailored to your unique needs. Contact us today to discuss how we can help you streamline your financial operations and achieve your business goals!
