The most important task in preparing your childcare business for tax season is documentation and a system to keep track of your business transactions. Transactions are a summary of the business income, expenses, and credits. In addition to keeping track of transactions, it’s important to keep track of supporting documents for all transactions because it can impact how you file your taxes. Supporting documents include receipts, paid bills, invoices, deposit slips, etc. Some ways to prepare for tax season throughout the year include:
Separate Personal and Business Assets
Keeping your personal and business assets separate will give you a more accurate picture of your business cash flow. It will also make finding relevant information for your tax statements easy. In addition, separating your assets can be a liability and help protect your assets in the case of any legal actions against the business.
Setup a Record Keeping System
Decide how you plan to track income and expenses throughout the year. Good record keeping helps to monitor the progress of your business and helps to determine whether your business is improving. It will also help you if the IRS decides to audit the business. You should keep track of income and expenses on a weekly and monthly basis. This can be done by investing in a daycare planner such as Forever Organize or by using an accounting software such as Wave or QuickBooks. It is recommended to use both.
Review Financial Statements
Review financial data every month. Things to look for include the amount of money the business brings in and the amount of money being spent. Look over the business debts and the ability to repay them and determine if there are any areas where the business can save money. Ensure all transactions are accounted for, and you have the supporting documents. For example, if you pay for an electric bill using your business bank account, print and file the receipt or confirmation page as proof of payment.
Keep Track of Supporting Documentation
Keep track of all supporting documentation for money coming in and out of your business. Create a filing system and organize documents by year, month, and type of income or expense. Do not store them in a way that makes them vulnerable to hackers or easy to lose. If you have physical receipts, scan them onto your computer or laptop before you file them away because the ink on the receipts will fade over time. It’s recommended to use a cloud storage service such as one drive. One drive allows you to lock folders and if your computer or laptop crashes, your documents will be saved.
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