Tax season doesn’t have to be stressful. When your books are organized, clean, and up to date, filing becomes faster, easier, and much less risky for your business or nonprofit. Whether you work with a tax professional or file on your own, the work you do now, before deadlines hit, is what makes all the difference. Here’s a practical guide to preparing your books for a smooth, efficient tax season.
Make Sure All Transactions Are Categorized
Start by reviewing every transaction in your accounting software. Many small businesses and nonprofits have uncategorized expenses, missing descriptions, or “ask my accountant” placeholders that become headaches later. Check for uncategorized income or expenses, personal charges accidentally paid from the business account, transfers between accounts, and reimbursements. The more accurate your categories are, the more accurate your deductions, statements, and reports will be.
Reconcile Every Bank, Credit Card, and Payment Account
Reconciliation ensures your books match real-life balances. If your bank says $10,000 and your books say $11,200, something’s missing. Reconcile bank accounts, credit cards, PayPal, Stripe, Square, and donor platforms (for nonprofits). If you use multiple financial tools, make sure every account is accounted for. This is the step that prevents surprises during tax prep.
Review Accounts Receivable and Payables
Now is the time to clean up what’s owed to you and what you owe others. For accounts receivable, send reminders for unpaid invoices, write off invoices that are truly uncollectible, and match deposits to invoices in your software. For accounts payable, make sure vendor bills are recorded, verify outstanding balances, and schedule payments to avoid late fees. If you’re a nonprofit, do the same with pledges, sponsorships, or grant draws.
Gather Supporting Documentation
If you claim an expense, you should be able to support it. Even if you don’t submit receipts, your records must be audit-ready. Collect receipts and invoices, mileage logs, payroll reports, contractor agreements, bank statements, donation receipts (for nonprofits), and grants award letters. Save everything digitally in labeled folders. This makes life much easier during an audit or during regular tax prep.
Verify Payroll and Contractor Information
Payroll and contractor filing deadlines hit before income tax deadlines, which means your records need to be accurate early. Review employee addresses and legal names, W-4 forms, 1099 contractor data and W-9 forms, total wages and taxes withheld, and benefits and reimbursements. If you paid any contractors more than $600 this year, start preparing to issue 1099-NECs.
Review Fixed Assets and Depreciation
If you purchased equipment, vehicles, computers, or furniture this year, make sure these items are recorded correctly. Your accountant may apply Section 179 deduction, bonus depreciation, or standard depreciation. A clean fixed asset list can result in meaningful tax savings.
Check for Major Business Changes
Changes in your structure or finances can affect your tax filing. Make sure your tax professional knows if you changed from sole proprietor to LLC or S-Corp, added a partner or board member, opened a new location, received major funding or grants, or launched a new revenue stream. Nonprofits should consider restricted vs. unrestricted donations, grant reporting periods, and program allocation changes. These can impact which tax forms you file and how income is recorded.
Prepare Financial Statements
Once your books are cleaned and reconciled, generate these key reports. Small business reports include the Profit & Loss/Income Statement, Balance Sheet, and Cash Flow Statement. Nonprofit reports include the Statement of Activities, Statement of Financial Position, and Functional Expense Report. These reports show the full picture of your financial year, and your accountant will likely request them immediately.
Plan a Pre-Tax Review With a Professional
Even if you do your own bookkeeping, a pre-tax review by a professional can save time, money, and stress. This is especially helpful if you’ve had changes in revenue, payroll, or operations during the year.
Your bookkeeper or accountant can spot errors before filing, identify missing deductions, prepare you for filing deadlines, and advise on next year’s planning. Think of this like a tune-up before a big road trip.
Don’t Wait Until January
The biggest stress in tax season comes from waiting until the last minute. If you start your year-end close early, you’ll be ready for your tax preparer and you’ll have time to fix anything unexpected. A good timeline to consider is to do a final cleanup and gather records in December, issue 1099s and payroll forms in January, and begin tax prep in February. Working ahead keeps everything simple.
Final Thoughts
Preparing your books for tax season doesn’t just check a box; it gives you insight into your organization’s financial health. Clean books mean better decisions, more confidence, and fewer surprises. If you want support, this is the perfect time to connect with a professional. A bookkeeper can help clean up your records, close the year correctly, and make tax time smoother than ever.
