9 Absolute Steps To Early Tax Prep

As bookkeepers, a good part of our job is focused on getting clients ready for tax season. Tax season is, after all, the big deadline where revenue, expenses, investments, and all other financial records detangle into one big chunk of paperwork processing.

Make it through smoothly and taxes are as simple as dropping some documents and forms off at your CPA — and if you planned properly, you might even get a nice refund at the end. Approach tax season haphazardly, though, and it becomes a mess of scrambling, possibly with a big bill at the end.


Your Personal Tax Prep Checklist

The best suggestion? Prepare, prepare, prepare — and if you need a starting point, here are the top 9 things I recommend to my San Rafael clients:

#1 Get All Income Info

Your tax preparation all starts with your income. Every single W2 and 1099 for the filing (either single or married) needs to be accounted for so that the exact amount of revenue and paid federal/state taxes, social security, and other taxes can be accounted for.

All avenues of revenue need to be included, such as rental property, freelance income, wages and tips, and so on. Make sure everything is accounted for, and that will set you up for a smooth filing.

#2 Sort Out Your Business Expenses

You could theoretically file just based on the documents in #1, but that will do you a huge disservice. One of the benefits of a bookkeeper is having someone on your side to properly categorize your expenses — contract work, overhead, home office, utilities, internet communication, inventory, and so on. By accounting for all of the different business expenses, you can begin to itemize deductions and thus maximize your potential return.

#3 Gather All Relevant Property Documentation

Your property deductions factor in significantly into your overall filing and return. At the very base level, you’ll need your property tax details and your mortgage interest statement. Property tax paperwork should come from your county (hold onto that statement when you paid it) and the mortgage interest statement comes from your bank, usually in your first statement of the calendar year.

These days, you should be able to look that up online. Outside of those two items — for each property you own — you should also tally any improvements, loans, refinancing, losses, and other key changes that could impact your deductions. If you sold a property, that falls under capital gains, which we’ll talk more about below.

#4 Maximize Your Tax-Friendly Contributions

A number of options exist for tax-friendly contributions depending on the way your income is generated. If it’s a regular employer, hopefully you’ve contributed to a 401(k) program for tax-deferred savings. There are other options you can initiate on your own, such as a SEP IRA or a ROTH IRA.

Both of those accounts also allow for tax-deferred savings, and you can contribute or even open an account all the way up to the day tax filings are due in April.


#5 Look at Stocks and Capital Gains

Did you sell stocks or property or any other type of investment in 2018? Make sure you have the proper documentation ready. At the very least, you’ll need a purchase price and date, and a sell price and a date. For properties, some other rules and guidelines are involved depending on such as how the property is used and how long you’ve owned it. For stocks, even if you didn’t sell any, you may still have to factor in dividends, so make sure all of your different accounts are tracked and documented.

#6 Tally Up Your Donations

Many different types of donations to non-profit ventures are tax deductible. This depends on the way that the organization is filed, as not all donations are necessarily deductible. Thus, your first step is tallying all of your donations to every organization involved. Then you’ll need to verify the eligibility of the organizations — most organizations will note this on the receipt for your donation.

Both donations of goods and cash donations are accepted, but goods require valuation. The way to judge the associated value with goods is technically based on the sale price at a thrift store. General guidelines for these goods categories are available online, and a contacting a bookkeeper can also be a quick way to answer those questions.

#7 Know What Taxes You’ve Already Paid

If you’re filing with just a W2 from an employer, then that’s as simple as it gets and the calculated tax payments will process in a straightforward way. But if you’re paying quarterly taxes, if you work purely on 1099s, if you are overseeing a payroll that comes out of your business revenue, then the total amount of paid taxes is going to require a little bit of legwork.

Outside of gathering all of your revenue details, this is perhaps the most crucial step in your preparation process. Be thorough and be accurate — otherwise, you’re putting yourself in a position for an audit.


#8 Look For Other Obscure Deductions

There are many obscure deductions that may be available, particularly if you run a small business — and especially if you have a home office. Beyond the standard list of car usage and supplies, things like medical expenses, loss of inventory, child care, even looking for employment can be itemized into deductions.

These almost always come with certain guidelines for qualification (for example, medical deductions only qualify if they make up a certain percentage of your income, and the GOP tax plan is phasing this out), so first explore the possibilities and then verify you have the documentation to back it up.

#9 Do It Early

The previous items may seem like a daunting task, especially if any of those elements are new or significantly different for you compared to previous years. Some documentation may take days or weeks to dig up, especially if you’ve got to track it down from different sources — and if you’re attempting to do all of it between your normal day-to-day life.

You don’t have to do everything at once (though if that’s how you work best go for it), but start as early as January in sorting out paperwork and forms so you know well in advance if you’re going to have to hunt down any specifics.

Tax Prep Help For Marin County

For residents and business owners in Marin County, a little bit of expert insight might be the difference between a smooth tax filing and a paperwork nightmare.

Get in touch with Books in Balance today to see how your expenses, revenue, and other potential deductions might be organized so there are no worries or questions come April.

Brandon Dante
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