Advanced bookkeeping tips for tax professionals

Advanced bookkeeping tips for tax professionals

Bookkeeping, or the process of accurately recording all your financial transactions, is a key part of building a successful tax business. However, it also comes with the potential for costly errors. According to Solution Scout, bookkeeping mistakes led to $1.3B worth of IRS penalties in 2021 alone.  

Unfortunately, bookkeeping errors are easy to make. A misplaced decimal here, a withdrawal accidently marked as income there, and suddenly you’ve got some major problems — or a big tax bill. However, there are steps you can take to avoid these issues and keep those books balanced and mistake-free. In this post, we’ll go through seven advanced tips for upping your bookkeeping skills. 

A quick caveat: These tips are not a replacement for the advice of a professional accountant or financial advisor. Never hesitate to reach out to an accounting professional if you have any questions or concerns.

7 tips for improving your bookkeeping skills 

Ready to become a better bookkeeper? If you’ve already mastered the basics of income vs. expenses and assets vs. liabilities, it’s time to move on to more advanced topics. The tips below are practical steps you can make to take your bookkeeping processes to the next level. Let’s get started.  

Automate wherever possible 

As discussed above, human error can lead to expensive tax penalties. By using an online bookkeeping tool or software platform, such as QuickBooks, Xero or Wave, you can reduce the potential for these costly mistakes. For example, these types of software programs can help you automatically categorize payments, track spending and produce financial documents like balance sheets with just a few clicks. You can also add on to these tools with helpful integrations, such as Invoice Sherpa (for automating accounts receivable), Plooto (for automating accounts payable) and Dext (for automating expenses).  

Maintaining your ledgers by hand makes it more likely that you’ll enter a typo or seven; bookkeeping software does it all (well, most of it) for you, no pencil required.

Use a payroll service 

One common mistake novice bookkeepers make is trying to do everything themselves, including managing payroll and other personnel paperwork. If your business has expanded to the point that you’re bringing on employees, it’s worth investing in outsourcing your payroll. Hiring, state and federal taxes, insurance payments, etc. are full of legal and financial issues that should be left to the experts. Gusto, SurePayroll and RUN by ADP are just a few of the online payroll service options you might consider for your tax business.  

Know when to delegate 

If your tax business does have multiple employees, you can save time and hassle by delegating specific bookkeeping tasks. If there are certain tasks that you find yourself struggling or forgetting to complete, pass them along to someone else. Examples include sending customer invoices, following up on unpaid bills and issuing vendor checks. Maybe one person is always responsible for credit card charges, and another always closes the books and creates the related financial statements.  

Keep your receipts 

When you think of holding on to your receipts, you might picture boxes and boxes filled with little paper slips. While you can decide to keep your receipts this way, a much easier option is simply to organize them digitally. Luckily, there are a number of tools that can help you do it. For example, you can scan physical receipts with a solution like Expensify, Clear Scan or Evernote. In addition, accounting and bookkeeping tools like QuickBooks have receipt organization functionality as well. Remember to account for every receipt — even the small ones. 

Know your trends 

Many small businesses have ebbs and flows of activity. A local gift shop, for example, might see a big spike in business during the holidays. For tax preparers, the busy season starts at the beginning of the year and goes through Tax Day in April. However, your particular tax business might experience other surges (for example, at the end of the fiscal year for a corporate client), so it’s helpful to know when you might have a lot of bookkeeping tasks to manage. By understanding your company’s seasonality and overall trends, you can better strategize your time.  

Separate your accounts 

If your tax business has only one employee — you — it might be tempting to just put every bill or receipt on your personal credit card. However, it’s important to resist that temptation. Before you even start making transactions, create a separate bank account for your business, and only use funds attached to those accounts to pay expenses. This greatly reduces the risk of “cross-contamination” between your personal purchases and those related to your business. 

Reconcile your accounts  

Reconciliating, or the process of matching your books to your bank statements, is something you should do frequently — monthly, at the bare minimum. Doing it even more often is a smart decision, especially when you’re just starting out or during particularly busy seasons. By reconciling your accounts often, you’ll avoid mistakes and catch them early if they do occur.  

Keep your books clean 

Avoid potentially costly bookkeeping errors by following the above best practices and staying on top of your transactions. If you’re looking for additional education on bookkeeping and tax topics, browse our list of continuing education courses. Surgent Income Tax School can also help you start and grow your tax business.