Best Bookkeeping Practices - S Corps

Bookkeeping for an S Corporation (S Corp) requires attention to detail and adherence to specific practices to ensure compliance and accurate financial reporting. Here are some key bookkeeping best practices for an S Corp:

1. Maintain Separate Accounts

• Business vs. Personal: Keep all business transactions separate from personal finances by using a dedicated business bank account and credit card.

• Reconcile Accounts: Regularly reconcile your business bank account, credit card, and loan accounts to ensure your books accurately reflect your financial transactions.

  
  

2. Track Income and Expenses Accurately

• Detailed Categorization: Categorize income and expenses properly to ensure accurate financial statements and tax reporting. Use consistent and clear labels for categories.

• Expense Documentation: Keep all receipts and documentation for expenses, especially those that may be deductible, such as business meals, travel, and office supplies.

• Automate Tracking: Use accounting software like QuickBooks, Xero, or Wave to automate the tracking of income, expenses, and categorization.

  
  

3. Record Payroll and Distributions Correctly

• Payroll Entries: Record payroll expenses, including wages, taxes, and benefits, accurately. Ensure that payroll records are in line with tax filings.

• Reasonable Compensation: Ensure that shareholder-employees are paid a reasonable salary and that it’s recorded properly in the books.

• Distributions: Track shareholder distributions separately from payroll to avoid confusion and ensure compliance with IRS rules.

  
  

4. Monitor Accounts Receivable and Payable

• Invoicing: Regularly issue and follow up on invoices to ensure timely payment. Record all invoices issued and received accurately.

• Track Payments: Monitor accounts receivable and payable to manage cash flow effectively. Record payments when they are received or made, and reconcile them with outstanding invoices or bills.

  
  

5. Prepare and Review Financial Statements

• Monthly Reviews: Prepare and review monthly financial statements (Income Statement, Balance Sheet, Cash Flow Statement) to monitor the company’s financial health.

• Accrual vs. Cash Basis: Understand whether your S Corp uses cash basis or accrual accounting and prepare financial statements accordingly.

• Adjusting Entries: Make necessary adjusting entries at the end of the month or quarter for accrued expenses, prepaid expenses, and other adjustments.

  
  

6. Manage Tax Obligations

• Quarterly Estimates: Calculate and pay estimated taxes on a quarterly basis to avoid penalties. Record these payments properly in the books.

• Payroll Taxes: Accurately record and remit payroll taxes, including federal, state, and local taxes, as well as Social Security and Medicare.

• Tax Deductions: Track deductible expenses meticulously to ensure that they are recorded and reported correctly. This includes health insurance premiums, retirement contributions, and business expenses.

  
  

7. Maintain Compliance with IRS Requirements

• Form 1120S: Ensure that the annual tax return (Form 1120S) is filed correctly and on time. This form reports the S Corp’s income, deductions, and credits.

• K-1 Forms: Issue Schedule K-1s to shareholders, which report their share of the corporation's income, deductions, and credits.

• W-2 and 1099 Forms: Prepare and file W-2 forms for employees and 1099 forms for independent contractors by the required deadlines.

  
  

8. Stay Organized

• Digital Records: Store financial records digitally in a secure and organized manner. This includes receipts, invoices, tax returns, and bank statements.

• Backups: Regularly back up your bookkeeping data to prevent loss of critical information.

• Document Retention: Keep records in accordance with IRS guidelines (generally 3-7 years, depending on the type of record).

  
  

9. Regularly Review and Update Books

• Monthly Reconciliation: Conduct monthly reconciliation of all accounts to ensure accuracy and identify discrepancies.

• Periodic Reviews: Schedule periodic reviews with a CPA or accountant to ensure that your books are accurate and that you’re taking advantage of all available tax benefits.

  
  

10. Use Professional Bookkeeping Services if Needed

• Outsource: Consider outsourcing your bookkeeping to a professional service if you lack the time or expertise to manage it effectively.

• CPA Consultation: Regularly consult with a CPA to ensure that your books are in order, and your tax filings are accurate and compliant.

  
  

By following these best practices, you can maintain accurate and compliant books for your S Corporation, ensuring smooth operations and minimizing the risk of errors or issues with the IRS.

Remember to consult with a qualified tax professional or attorney to ensure you're maximizing the benefits of this business structure. If you need assistance, please call Turner Business Solutions at (316) 825-0125 or schedule a free initial consultation online.