Catch-Up Bookkeeping Before Tax Season

Catch-up bookkeeping closes the gap between “I have not opened the books since summer” and books that can actually be used, for a return and for decisions. It is fixable, and it goes better started early than squeezed into the weeks before a tax appointment.

Moreno Financial Services offers catch-up cleanups that rebuild usable books when a Central Texas business is months or years behind. Afterward, monthly bookkeeping can keep the file current, with plans starting at $600/mo and the exact scope confirmed before we begin. Here is the general order catch-up work follows, and what you can gather before anyone starts.

Why a backlog gets harder the longer it sits

The IRS notes that unless expenses are recorded when they occur, they may be forgotten by the time a return is prepared. A backlog is that problem multiplied: every month left alone is a month of deposits, card charges and receipts with nobody's notes attached, and the memory that would have explained them fades a little more each week.

Software has limits too. QuickBooks bank feeds only reach back as far as each bank allows, and that window varies from bank to bank, so months older than a bank's download window have to come from somewhere other than the feed, such as the statements gathered in step one.

Step one: gather what exists

Start with the statements. The IRS's guidance on rebuilding business records tells people to get copies of bank statements, invoices from suppliers, and last year's tax returns. That guidance is written for records lost in a disaster or casualty, and its list is a practical place to start for a year that never got recorded. Once you engage us, we tell you the secure channel for sending statements; please do not send them, or any tax document, by ordinary email.

Past personal returns can be pulled as transcripts through the IRS Get Transcript tool, online or by mail, and a business can view its transcript in its IRS business tax account. For everything else, the IRS's own list of record types makes a practical gathering checklist:

• Statements for every bank, card, loan and payment account the business used
• Sales records: deposit records, invoices and receipt books
• Proof of payment for expenses: canceled checks, transfer records and card receipts
• Supplier and vendor invoices
• Records for equipment or vehicles bought during the year
• Payroll reports, if the business had employees
• Last year's return

Step two: get every transaction into the books

In QuickBooks Online, Intuit's help article says clients connect their own bank and card accounts. Recent months then arrive through the feed, ready to be categorized. Older months, beyond what the bank's feed will reach, are entered from the statements gathered in step one.

Matching deserves care in a catch-up. It links a bank transaction to an invoice, receipt or bill already in the file, which QuickBooks says keeps the books accurate and prevents duplicate entries. A file that was kept for a few months and then dropped can hold both halves of the same event: an invoice entered by hand, and the deposit for it brought in again by the feed.

Step three: reconcile one month at a time

Reconciliation means making sure the amounts in the books match each bank and card statement. QuickBooks needs the monthly statement for every account to do it, and a first reconciliation on a neglected file starts from the account's opening balance, which QuickBooks calls the starting point for the account.

Working one month at a time, in order, means each month is checked against its own statement before the next one starts. The IRS states the goal in one line: the statement, the checkbook and the books should agree. A month is finished when they do, and not before.

Step four: separate business from personal

Mixed spending needs its own pass. The SBA notes that business banking keeps business funds separate from personal funds, and the IRS names opening a business checking account as one of the first things to do when starting a business. When one account served both, each personal charge has to be identified and taken out of the business picture.

You do not need perfect folders to start. You need a starting point and straight answers about cash spent without a receipt. A question marked for the owner is better than a guess forced into the ledger.

After the cleanup

Once the books are current, the IRS advice is to keep them that way: it says it is generally best to record transactions daily, and it holds records kept in accounting software to the same requirements as paper books. Recording transactions as they happen, then reconciling every account each month, keeps to that advice.

Some owners keep the books themselves from there, and the McLennan Small Business Development Center offers no-cost consulting and training to owners in Bell and Coryell counties, with the Texas State University SBDC serving Lampasas County. Others hand the monthly work to us. If you use another preparer at tax time, we package clean reports they can use. For what the monthly plan covers, see bookkeeping from $600/mo: what you get.

When to start

Start as soon as you know you are behind. On a free 15-minute call we tell you what a cleanup looks like, and the cleanup is scoped and quoted as its own project before any paid work begins. If prior-year returns were never filed, the IRS page on filing past due returns is linked below, and if you would like the return prepared as well, see our tax preparation services.