The business tax return is built from the accounting records. When the bookkeeping is complete and accurate, the tax preparer can more efficiently determine the business’s taxable income, deductions, assets, liabilities, payroll, and shareholder activity.

Incomplete or inaccurate bookkeeping may cause:

  • Income to be reported twice or omitted
  • Deductible expenses to be missed
  • Loan proceeds to be incorrectly recorded as income
  • Loan principal payments to be incorrectly deducted as expenses
  • Owner transactions to be misclassified
  • Asset purchases to be incorrectly expensed
  • Payroll and contractor reporting errors
  • Inaccurate estimated tax calculations
  • Delays in preparing the return
  • Additional bookkeeping and tax preparation fees

Accurate bookkeeping also creates opportunities for proactive tax planning. When the books are updated throughout the year, the accountant can review profitability, estimate the tax liability, evaluate payroll, discuss retirement contributions, and identify planning opportunities before the year has ended.

The IRS notes that organized records make tax return preparation easier and provide support if the return is examined or the taxpayer receives a notice.