Your Tax Preparation Business’s practice will require bookkeeping and accounting like any small business. Unfortunately, there is no one-size-fits-all solution for small businesses. You’ll need a company account, an accounting system, bookkeeping software, and at the very least, knowledge on how to pay quarterly business taxes.
While you may already possess some of the information and abilities required to keep books for tax purposes, bookkeeping and accounting to manage your small business include a little more. Make sure to read more about accounting and where to find professional tax preparation Business’s software.
Creating a Bank Account For Your Business
You’ll need to start a business bank account once you’ve registered your tax business with your state. This keeps your personal and corporate finances separate, making bookkeeping much easier. You must have a business bank account if you’ve registered your company as an LLC.
Accounting Methods: Cash vs. Accrual-Basis
After you’ve set up your business bank account, you’ll need to decide whether you’ll keep your books utilizing the cash or accrual accounting technique. Revenue and costs are recognized in the cash-based system when they arrive in your bank accounts. Even if money hasn’t yet arrived in your bank account, the accrual approach acknowledges revenue and expenditures when the product or service is supplied.
Consider preparing tax returns for a client in February but not receiving payment until May. If you employ cash accounting, you won’t be able to recognize that revenue until May. If you utilize accrual accounting, you’ll see it in February.
The cash system is a little easier because the accrual-basis technique involves duplicate entries for each matter—a debit in the account that declined and a credit in the account that increased (such as accounts receivable and accounts payable).
The accrual approach is essential in most major enterprises. You have the option as a small business owner. Though it requires more effort, accrual-basis accounting is more popular since it provides a more accurate picture of your finances.
On the other hand, using the cash technique can save you time because you won’t have to double-enter each transaction. You can choose the time-saving cash technique if your expenses are straightforward and you normally receive paid immediately after performing services for consumers.
Software for Bookkeeping and Payroll
When filing your clients’ taxes, you already know that having the best professional tax software makes everything. The same may be said for accounting and bookkeeping software. Your bookkeeping software should be able to connect with your business account to avoid making manual entries and automatically generate financial reports and statements.
You should be able to attach scanned receipts to your expense entries and switch between cash and accrual accounting techniques.
Transaction Entry and Categorization
After setting up your accounting and bookkeeping software, you can start categorizing transactions from your bank account. If you use accrual accounting, you’ll manually input transactions as they happen and then reconcile them with payments that arrive in your bank account. At least once a week, go over your transactions and upload any relevant scanned receipts or invoices. Keeping track of your finances will never be a chore, and you won’t lose copies of your receipts.
Monitoring of Profit, Loss, and Cash Flow
Try to study critical financial statements, including profit and loss sheets and cash flow sheets, at least once a quarter. Your bookkeeping software can generate these reports for you automatically if you’ve been keeping up with your books.
Your expenses and revenue are listed on the profit and loss statement for any given period (usually per month). This information will make it easy for tax preparers to track earnings or losses during the off-season vs the busy season, making it easier to set quarterly income objectives.
A cash flow sheet allows you to track how much money is coming in and out of your accounts. If you keep your books using the cash-basis method of accounting, you’ll already have a good idea of your cash flow. If you adopt the accrual method, you’ll need to examine your cash flow sheets frequently. If you have outstanding invoices for clients, your books may display bigger amounts than the actual cash in your accounts.
All in One Software Package
Small and big tax offices with several offices and many workers will benefit from the ALL IN ONE Software Package. This is the most popular package for tax offices with 50 to 500 clients. Stop paying too much in hidden fees and tax software. Save a lot of money on fees. All 1040, Sch C, and state forms are included in one package. Enjoy unlimited returns in 50 states and an unlimited number of additional users, and access to three prior year returns.
Keystone Tax Solutions is a great place to start if you want to start a tax business. We are a market leader in professional tax preparation software, providing 100% web-based software and assisting thousands of tax professionals in obtaining affordable technology-driven professional tax preparation software. Get your free demo today!
