Preparation is key to collating accounts and filing your tax returns quickly. Bank statements, invoices and expense receipts should be recorded during the year, these records will form the basis of your accounts and tax returns at year end. It is important to understand the tax and accounting rules, and your entitlements when preparing accounts and filing tax returns. It is your responsibility to keep records of the details behind your business figures. Failure to keep adequate records is a legal obligation of all company directors and company secretaries. Even where the tax and accounts functions are outsourced, it is important for directors to understand all data before they sign off on their accounts. Personal income and business revenue have different tax and accounting rules, and filing dates are often different. Therefore it is important to have an accountant and tax advisor to assist you.
Organising your accounts
Business owners struggle to understand their own finances. If they are unfamiliar with how the basic accounting process works, it is easy to begin to feel overwhelmed right at the beginning. Thinking that they can get away without planning to track their business activity is a major downfall. Taking the time to plan and organise your financial information will avoid this. Getting into the habit of tracking income and expenses regularly will make it easier to understand the ongoing performance and complete the end of year processes faster.
It is important to separate business and personal finances. Business expenses should always be separated from personal expenses. When setting up your accounting system, always create separate system for each of business and personal transactions.
- Decide what you need to keep.
- Set up a filing system that works for you.
- Reconcile and file receipts.
- Have an action file to store receipts that need to be reconciled.
- When bank and credit card statements come in make a habit of reconciling the transactions with the receipts in your action file.
- If a receipt requires further action, such as items that have been returned or disputed charges, set it aside.
- Choose a central and safe place to store your investment papers and bank documents.
- Once identified, take care of credit card issues as soon as possible. When reconciled file the paperwork away.
When there is reduced profit, the company does not have to pay as much tax, the less profit made, the less tax paid. From a commercial perspective, the business may wish to appear profitable but from a tax perspective it is the opposite.
The challenge here comes in trying to figure out how to legally decrease income to reduce the final tax bill. Business owners need to focus on their business activities, it is impractical to try and keep abreast of changes in tax law and the corresponding changes needed in your accounting system. Tax accounting is best left to the experts.
Tracking & reporting taxes
It is suggested that four documents be developed once a month; Bank Reconciliation, Profit & Loss Statement, Cashflow and Balance Sheet to keep your books up to date. If you follow this advice, then the end of the year preparation will be quite simple as all this data will be in the records. For your tax return, the main document to use will be the Profit & Loss income statement. Although, the other two documents, cash flow statement and balance sheet, may contribute additional information for your tax return.
It is worth noting that these documents are valuable to you as a business owner in several ways. The first is that they will give a clear picture as to how the organization performed in the previous year. You will also have a clear understanding of how assets and liabilities changed, as well as how debt was decreased or increased. These are yearly snapshots of your organisation’s performance and how the financial performance was related to operational activities.
Closing the books at year end allows the owner and third parties to use a rational basis to judge performance of the organisation, its employees and management. Therefore, instead of just using the documents to close the books and file your tax returns, use this opportunity to develop a better insight into the organisation.