As we kick off the new year, it’s a great time to start thinking about preparing for tax season. While it’s not everyone’s favorite task, getting a head start can save you lots of time down the road. To help, we’ve listed some of the most important steps for you to take below.
Step 1: Update Wave with your business transactions
First things first: You’ll need to ensure all of your business transactions are entered into Wave. You can do this easily by connecting your business bank and credit card accounts. That way, your transactions will automatically be added. You can also add transactions from your bank, or enter the transactions yourself, through the Transactions page.
We recommend keeping separate bank and credit card accounts used exclusively for your business. When you mix business and personal spending, it creates extra work and can lead to errors.
Step 2: Categorize your transactions
Once your transactions are added to Wave, it’s time to check that your business activities are categorized properly. Here’s how to find all your uncategorized transactions:
- Navigate to the Transactions page
- Select Uncategorized from the dropdown box
- Select Apply
Not sure how to categorize a transaction? Simply create a new category called "Ask accountant" or "How do I track this?" and categorize those transactions for now while you determine how to properly classify them.
Step 3: Get your final payroll ready
Have employees? Be sure to remind them to submit any outstanding expense reimbursements before you complete your last payroll run. Don’t forget to include any year-end bonuses, annual benefits, or other final adjustments.
For the amounts to be included in 2021 reporting, the final check date must be in 2021. You can find other critical payroll processing dates in our payroll year-end checklist.
Step 4: Reconcile your bank and credit card accounts
Entered and categorized all your transactions in Wave? Your next step is to grab your bank and credit card statements and start reconciling by navigating to Reconciliation and choosing one of the provided accounts. Tip: You can learn how to use our new Reconciliation feature in this helpful video.
Reconciling bank, credit card, and loan accounts, means comparing the activity in Wave to the activity recorded by your financial institution. This ensures your books are accurately counting the money that’s gone in and out of your business. Account reconciliation is critical for the year-end, so be sure to make it a priority.
Step 5: Gather the required paperwork
These are the reports from Wave you’ll need to file your taxes: The Profit & Loss for the fiscal year and the Balance Sheet as of the last day of the year.
You’ll also need to gather:
- Bank and credit card statements for December 31st
- Receipts or bills for any fixed assets you purchased during the year (like computers, vehicles, furniture, equipment, and real estate)
- Loan statements for December 31st and amortization schedules, if available
- Any tax documents you receive (like 1099s)
- Forms W-3 and W-2 (USA), or T4 Summary and T4 (Canada), if you have employees
- Income that isn’t reported on a tax form (like income from business sales and receipts)
- Information about cost of goods sold (if your business has inventory)
- The amount claimed on the ERC and/or the sick or family leave credits on your employment tax returns (you’ll need to reduce deductible wages by the amount of those credits claimed)
Tax saving opportunity: Make sure you’re tracking and documenting items like vehicle mileage and home office expenses. They’re excellent tax deductions, and can help you hang on to more of your money come tax time.
Let Wave and H&R Block handle tax filing for you
Now that your finances are separated, tax time will be much easier - but you can feel even more confident by importing your Wave accounting data to H&R Block (which is super easy, BTW, and available to all US-based customers).
You’ll cut down hours of work, get personal advice from tax pros, and much more.
The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.