It’s almost year end and tax season is approaching. When your books are done properly and compliant with IRS recordkeeping requirements, your business will avoid tax season headaches like unexpected tax bills or late fees.
Bench exists so you don’t have to do your own bookkeeping. However, if you prefer to handle your own books, here’s a simple step-by-step guide to getting caught up just in time for the new year.
Step 1: Collect receipts and invoices
The first step is to compile all of your business's invoices and receipts. Here are the most important ones:
Review the invoices or sales you’ve made within your MINDBODY account and double check that all sales have been fulfilled for the tax year. Depending on whether you’re using a cash or accrual method, you’ll record these differently.
Evaluate your customer accounts and identify bad debts. Bad debt occurs when a client fails to pay for services already provided to them. However, to deduct bad debt from a tax return, the IRS will need proof that you have taken action to collect the debt. Bad debts can be claimed by using the nonaccrual experience method or the specific charge-off method.
Collect receipts from all business purchases you have made during the tax year. This will be much easier if you’ve separated your personal and business expenses (see Step 3), where you can simply pull up your bank statements. Otherwise, double check that you’re tracking and claiming every deduction available to your business using this handy list of small business tax deductions for fitness businesses. Afterall, you are entitled to legally maximize on every business tax deduction.
Start by confirming that all of your vendor accounts have been paid in full, and if applicable to your business, make sure all your purchase orders were fulfilled as requested. Once you’re all squared up with your suppliers, ensure that you have copies of paid invoices. If you’re missing any records, ask the vendor to send a copy.
Step 2: Reconcile your bank records
Reconciling your bank records accomplishes two things – it ensures you don’t miss any business expenses or important records and it helps you catch any mistakes your bank may have made.
Reconciliation can be done by cross-referencing every transaction in your bank statement with its corresponding transaction in your business accounting records. These records can be payroll reports, merchant reports or loan statements. If you catch errors, you can begin looking into the cause of the error with your bank or vendor.
For example, in reconciling your bank records you may find the total value earned in your merchant processor doesn’t equal what you see in your bank. This is often a timing issue, or a result of tax and returns not being split out from sales.
Step 3: Separate personal and business expenses
When you commingle your personal and business funds, you could be held personally liable for your fitness studio’s debt and actions, so the sooner you separate the two, the better. Familiarize with how to open a small business bank account and keep your finances separate.
If you’re unsure about whether a purchase qualifies as a deductible business expense, learn how the IRS differentiates personal and business expenses .
Step 4: Create digital records
If you haven’t yet made your business paperless now is the time to do so. Creating digital records of essential documents and receipts can be tedious without the right software. Here are some solutions to look into for digitizing paper documents:
Step 5: Submit forms for contractors and employees
If you paid independent contractors and/or employees during the tax year, there’s a good chance you’ll need to file the following forms:
Independent Contractors: Form W-9 and Form 1099-MISC
Are your instructors independent contractors? Or did you hire an independent contractor to fill in for an instructor this year? If you paid them more than $600 for work during the year, you’ll need to submit a Form W-9 and a Form 1099-MISC . A W-9 requests a contractor’s taxpayer information. The contractor completes this and returns it to you. Then, use the information on the contractor’s W-9 to issue a 1099 to the IRS. If this is your first time, refer to How (and When) to File a 1099 first.
Employees: Form W-2
You’re required to file Form W-2 for all employees.
Step 6: Review your books with a professional
If you’re hustling to run a fitness studio then you already know doing things yourself is the most affordable option. But when it comes to your finances, paying for a tax professional to review your books can end up saving you money in the long run.
Tax professionals will identify and fix errors; they can also help maximize the deductions for your business. Plus, a tax pro’s time is deductible at year end.