Your Business Tax Strategy Isn’t Broken – Your Accounting Is
Everyone’s chasing secret deductions or clever tax strategies—but for 99% of small businesses, that’s not where the problem is. You’re not overpaying because you don’t know the tricks. You’re overpaying because your accounting is… off. Fix these three mistakes, and you’ll fix your tax problems —no gimmicks required.
The truth is that taxes are supposed to be inherently payable. They’re designed that way. When people are not able to pay taxes, it’s usually because they’re not getting the numbers right. When you accurately report things, you’d be surprised about how manageable taxes really are. And if taxes feel big, then I’ll show you exactly why that is. I’ll give you the exact buttons to press and boxes to check to make it really easy to see if your accounting is correct – AKA your taxes are correct.
Mistake #1: The Reconciliation Gap
The Question: do your balances on the books match your balances in real life?
The Reason: Because if your books balances are not the same as real life, then you haven’t recorded every transaction. That means that you’re probably not taking every deduction. You’re missing income. And you have no audit defense either way.
Example: if your bank balance on the books isn’t the same as your bank balance on your bank statements, then you didn’t accurately record everything. And if your books are incomplete, your taxes will be too. And that won’t help you.
The Check: In QuickBooks, here’s the clicks to make:
Transactions
Reconcile
Choose Account (usually bank and credit cards)
Input statement ending balance
Input statement ending date
Hit “Start Reconciling”
If there’s a difference, QuickBooks will tell you in big letters and text how off you are.
If you want to know how to fix it, see this post on reconciliations (link)
Mistake #2: The Numbers Don’t Lie, but The Numbers Don’t Tie
The Question: does the retained earnings on the tax return match the retained earnings on your books?
The Reason: You’re taxed on net earnings. When you add up your net earnings every year, you get your “retained earnings”. If your retained earnings on the books don’t match the tax, then it means one of two things:
You reported taxable net earnings incorrectly in the past – i.e. your past taxes are screwed up
You back posted something this year – i.e. you put a transaction in last year when it should’ve gone in this year
The Check: Here’s the check we use at Sussman.cpa with every tax return
Look at Retained Earnings on Books – Equity Section of Balance Sheet, on the Bottom Part
Look at Retained Earnings on Prior Year Tax Return – Page 4 of S-Corp Return, Page 5 of Partnership Return, Equity Section of Balance Sheet
Subtract difference
If there’s a difference, you have some financial fixing to do.
If there’s no difference, then your business accounting is strong.
The Fix: It depends. But I would not recommend trying to DIY it.
Sometimes it just means finding one transaction that was posted in the wrong period.
But sometimes it means that you have to fix years of mistakes.
And often times, it’s somewhere in the middle. And a CPA who versed in business accounting can work magic in these cases.
It’s tricky and gives even the best accountants headaches from time to time, but it absolutely will lock down your accounting once it’s correct.
Mistake 3: The Taxable Income Mismatch
The Question: Does my net income on the books match my net income on my tax return?
The Reason: You’re taxed on earnings. If your earnings are not reported correctly, you’re not taxed correctly. If you overreport, you overpay. If you underreport, you get IRS letters.
The Check: You only need two numbers: your books profits, your taxable income
In QuickBooks:
Click on Reports
Click Standard Reports
Click Profit and Loss
Set time for Tax Year
Click Run Report
Look at the Net Income number at the bottom line
Note this number
On Your Tax Return:
Go to Page 1 (yes literally the first page)
Look at Net Income
Note this number
Are the two numbers different?
If so, you have a problem to fix.
If not, great job – you’re taking the best legal tax position
The Fix: Go through each item on income and expense and make sure that they’re identical on the tax return. If there’s a difference, then eliminate it. If you can’t then it’s because you’re making mistakes #1 and #2 (trippy right!)
Conclusion
It’s not sexy, but you don’t anything fancy to save big on taxes. You just need to make your books match real life, and your taxes match your books. That’s it. For 99% of small businesses, the biggest tax savings are found in what you’re already doing. Improve your accounting and your tax life gets a lot better.
Just like dieting, the rules and simple, but it’s not always easy to follow them.
If you went through these checks and found that your accounting is wrecked, then you’re not along – and you don’t have to fix it by yourself.
Schedule a free consultation and we’ll review your books, spot the tax gaps, and help you get all the tax savings that you deserve.
