Tax planning often starts with a question about deductions, an S-corporation election, estimates, or a major purchase. Before answering, a responsible advisor needs to know whether the financial information is reliable.
A profit-and-loss statement is not enough
The balance sheet may reveal unreconciled bank or card balances, duplicate loans, assets recorded as expenses, unexplained negative balances, inconsistent owner activity, old clearing accounts, or prior-year balances that did not carry forward correctly.
Reconciliation is the starting point
Reconciliation compares bookkeeping records with financial-institution statements and surfaces missing transactions, duplicates, incorrect dates, transfers, outstanding items, and beginning-balance problems. Without it, an advisor may not know whether reported cash activity is complete.
Owner transactions need structure
Money moving between an owner and the business is not automatically income or expense. Depending on the entity and facts, it may represent payroll, a draw, distribution, contribution, reimbursement, or loan. Those categories are not interchangeable.
Signs cleanup may be needed
- Several months or years remain unreconciled.
- Balances do not match statements.
- Large amounts remain uncategorized.
- Business and personal activity are mixed.
- Loans, assets, payroll, or processor activity are incomplete.
- Prior returns do not agree with the books.
What a planning-ready file provides
The advisor and owner should be able to understand current income and expenses, cash and card balances, material assets and liabilities, owner activity, payroll, major changes, and items that still require documentation or judgment.
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