When DIY Bookkeeping Meets Pre-Tax Season

This pre-tax season, our favorite Bookkeeping Mensch, Paul Rosenblum is having fun because he’s knee-deep in one of his favorite things—a DIY bookkeeping cleanup. He takes us along on the clean up journey, including two tangled LLCs, years of unreconciled accounts, and more. He finds joy in the process by relabeling accounts, sorting out equity, and turning confusion into clarity. It’s a reminder that not every mess is a nightmare, especially when the client is cooperative, communicative, and appreciative. As pre-tax season ramps up, Paul’s feeling—dare we say—pre-seasoned and proud of this bookkeeping cleanup.

Transcript

Season 6, Episode #5

Post Halloween, pre-tax season, so the ‘scary season’ has officially just begun for me. It seems to get earlier and earlier every year.  I have gained some new clients and am getting ready to walk away from those clients, causing me stress and creating somewhat ‘scary’ times. So, time goes on and so does bookkeeping and cleanup jobs.  A Facebook forum has been recently talking about several ‘cleanup’ jobs that bookkeepers have started, and I recently picked up another one, inheriting a cleanup job that includes two companies, both with the same owner, and I am now working on a client who has been in the queue for a while since I recently finally finished a large project. In this episode, I’ll be talking about the new client, recommended by a current client, and the client, at least so far, is a model client for me. I’m “Pre-tax season(ed)” Paul Rosenblum. 

Before I begin, please remember to drop me a voicemail or email with any ideas that you have about episodes that would help you as a business owner or a bookkeeper or a ‘soon to be’ bookkeeper.  I love having a dialogue with so many listeners of this podcast. Thank you all for following and subscribing. (Aren’t you tired of my voice yet)?  

When I finally get to the point of ‘semi-retiring’ or (Pre-retiring), I want to do ‘cleanup after cleanup’, and maybe not even take over the bookkeeping after the initial cleanup is finished. I love doing cleanups, even if I have to go back through years of data and re-reconcile and make things right.  There is a beginning, a middle, and an end to all the cleanups, unlike bookkeeping, when the clock resets every month when new bank and credit card statements come out. Cleanups are fun!  (I think I’m going to have a T-shirt made that says just that with a small picture of a General Ledger and lots of floating numbers going through a funnel and coming out all in perfect order).  Now, let me tell you the story about my latest ‘cleanup client’. 

First of all, I did not accept the client until I was able to log into their books and go through what was there.  I ran a balance sheet, saved it as a PDF file, and then made notes that I can send to the client as to what needed to be cleaned up.  I did the same with the profit and loss.  Nothing out of the ordinary for a client who wanted to do it themselves but had no training in bookkeeping or taxes.  It was a good, logical effort. Incorrect, but I liked the effort. I talked to the client, and they were clear that they knew the books needed work and wanted me to do whatever was needed.  I looked at their net profit and knew that they could back up that thought by being able to pay me. So, we had a great phone conversation, then a Zoom call, and we were off and running.  This is what I saw when going through the books. 

1. Every bank account, business and personal, were in the books as ‘bank accounts’ which are Assets in accounting. 
   1.  I fixed this by re-labeling all of the accounts very clearly and creating journal entries in bank accounts that were closed to zero them out and then moved them to Equity accounts. For those who don’t know what journal entries are, it’s an ‘after the fact’ adjustment to the books by using debits and credits without touching the original transaction. It’s adjusting value between accounts. 
2. There were bank accounts for 2 different LLC’s, which were loosely connected, but I was able to figure it out since they mentioned that there were two LLCs and each had a different tax ID number. 
   1. I fixed this again by re-labeling all of the accounts and slowly figuring out which account belonged to which LLC. 
3. Personal credit cards and business credit cards were all entered, even though the personal credit cards (and bank accounts for that matter), were strictly personal and not being used for business expenses at all. 
   1.  I fixed this by again, moving the personal credit cards to Equity accounts since they were paid for by the business, even though all of the expenses were personal. 
4. When I went to the banking section, none of the balances matched up to what the bank and credit cards said the balances were, so I knew there was a problem. When I went to see which accounts were reconciled, to my surprise, no accounts were reconciled all the way back to the pre-covid era. 
   1. When I receive the bank statements, I will go back and reconcile every month starting from the beginning and then fix the double entries by making journal entries and creating a ‘Prior Years Adjustments’ Equity Account.
5. Personal IRS and state tax payments were in the profit and loss, not where they belong on the balance sheet.
   1. Easy fix. Just edit and change the expense account to an Equity account as a subaccount of DRAW or ‘Personal Expenses’. 
6. Transfers between accounts were in an ‘uncategorized asset’ account on the balance sheet from years ago. Even though this does not affect the profit and loss, it should be corrected.
   1. When I reconcile all of the accounts, I’ll find those transfers and move them as I run into them on statements.
7. Double entry credit card payments were made, which was one reason why the balances were off. 
   1. I will fix them at the end by just reversing each transaction if they were double entries, or if they were manually entered and entries made that never really happened, then I will probably just get them out of the bank account and move them to a “Draw” account, at least for now. And in some cases, I might delete those transactions if they didn’t affect the profit and loss.
8. None of the Fixed Assets on the books were shown to be depreciated. I have to check the prior tax returns for the last 7 years to see if they actually were. 
   1.  This is going to be tricky.  The tax return itself won’t break down which assets were depreciated.  I will try and get work papers from the tax preparer or printouts from the tax software that they are using to show the annual depreciation on the items. If I can’t get those, I’ll try and match up the best I can. The client said that they were told that everything as of the end of 2024 was depreciated. Do I believe that?  Probably not. Especially since the tax preparer has been very difficult to reach for the past several months.
9. The companies are both on a cash basis, but an ‘allowance for bad debt’ was shown on the balance sheet. This is strictly an accrual account.
   1.  Again, an easy fix.  I’ll just zero that out with a general journal entry -- I’ll have to look at the entry carefully and that will let me know how to reverse it. 
10. There was a crypto investment through the company.  If you want to do that, do it personally, not through an LLC or an S Corp.
    1. I’ll talk to the client about that and see if they can change the name that the Crypto is under.  If not, I’ll just leave it there for now.  
11. There were closed bank accounts and credit card accounts with hefty balances showing, one showed a large negative balance! 
    1. Journal entries are great for these kinds of adjustments as well.  We can zero out the closed bank accounts and adjust the credit cards to the correct balance as of the end of 2024, and then we’ll move into 2025. 
12. There was a ‘loan’ from a family member in the books, but in reality, it wasn’t a loan, it was a gift.  
    1. This would be adjusted from a loan (Liability) on the balance sheet to ‘Additional Capital’ with a subaccount of “Gift from family” in the Equity section.
13. The SBA (EIDL) loan back in 2020 that started to be paid back in 2021 showed all the payments going toward the principle and did not show any interest.  I have to check the tax returns to see if the tax preparer picked that up or not. It’s important since the interest is tax deductible and should show up on the profit and loss and not on the balance sheet like it was. 
    1. I received the SBA monthly statements 20 minutes after I asked the client for them and corrected 3 years of payments. The balances are exactly right in the books now. 
14. There were distribution accounts, even though the companies are single member LLCs.
    1. Just changed the account to a ‘Draw’ account.

And that’s just the balance sheet!  You taking notes yet?  Coffee Break!  Or my patented “Reese’s Peanut Butter Cup Break” ---- 

Before we move on to the Profit and Loss and an ending that hopefully will make you smile, let’s take a short break: 

And now, for today’s ‘Tax Tip’. The 2026 estimated tax due dates are as follows:

  1st Quarter: April 15th, 2026

 2nd Quarter: June 15th, 2026

3rd   Quarter: September 15th, 2026

and the 4th Quarter: Jan 15, 2027. 

 Write these down and pay what you can so that on the day that taxes are filed, you won’t have to shell out more than you’d like to. 

Now, do you want to hear about the profit and loss report and what I found?  

I assume you all said “Yes”, or “Sure thing, Paul!”.  (or at least nodded your heads) --- Ok---- Here we go Let’s move on to the profit and loss. 

I ran the profit and loss, exported it to a PDF file (I could have exported it to Excel, but I like PDF files and making comments there), and started to go through it.  The following is what I found. 

1. I didn’t like the labels of the revenue section.  Just a personal preference, but if I didn’t understand what the categories were, that’s not a good thing.  
   1. Easy to correct.  I edited and renamed the accounts in revenue.
2. The COGS had equipment and other things that they purchased for jobs, but it was very unclear to me if what was left over and unused was left at a job or went back with them to be used again at another job.  Two different things in accounting. 
   1. I asked the client about this.  They told me that what equipment they purchased for a job and did not use, they kept and likely rented them out to other companies for their jobs.  So, they have a rental business as well, all part of their main business.  That should and has been separated in the revenue section.
3. Again, a preference of mine, but the misc. account “Ask My Accountant’ was a regular expense account, rather than an ‘other expense’ account.  
   1. Easy fix.  Just edited the account.
4. No company car, but all car expenses were in as regular expenses.  A personal car should be in ‘other expenses’ so the deduction can be taken off using a formula by the tax preparer. 
   1.  I had to totally re-organize the ‘other expenses’ section.  Today, it looks great and is accurate.
5. Health Insurance for the owner should be an ‘other expense’ but was put in the books under insurance as a regular company deduction.
   1.  Any single member LLC, the health insurance for the owner should be what we call “Under the line”, meaning under the NET profit, or in other words “Other Expenses”.  They now are. 
6. One company has a studio, the other company takes a home/office deduction which would include a percentage of home rent, utilities, internet, etc. These were showing up as ‘other expenses’, but not in a very organized way. The studio rent and utilities are regular expenses of the LLC.
7. There were some accounts in capital letters, some were in the proper punctuation. Makes me crazy (but you probably know that already) I fixed that easily.

The chart of accounts and reports have now been cleaned up. I sent the client the ‘before and after picture’ of the chart of accounts and the two reports. They were, needless to say, very happy and excited to move forward.  When I asked them for every SBA statement from when they started repaying that loan, it took roughly 20 minutes to receive them.  Amazing.  So many of my clients, I’d have to wait a week.  I am, however, at the writing of this episode, still waiting on all the bank statements, but I have no doubt that I will receive them very soon. I know they had jobs last week and were out of the studio for several days. 

These are the kind of clients who I love to work with. They get what I am trying to do and appreciate it. And sometimes, in NYC, that’s a hard thing to find! 

When I get the tax returns, I will have to try and create the balance sheet to reflect the tax returns, and that’s going to be the slow part of this cleanup.  But it is well worth the effort.

Going to start breaking out the white shirts again and dressing the part of a bookkeeper and saving the shorts and T-shirts for next summer. It’s getting busy! Pre-tax season is here!  Is that kind of like a pre-wash for the laundry?  Prenuptials?  Preapproval? Pre-conditioning?   

Well, I’m pre-occupied with the beginning of tax season for me.  Why can’t people Pre-Pay me?  I’m obsessed with PRE—all of a sudden.  I wish I could give you a PRE-view of the next episode!  (But I haven’t thought of it yet) ((Maybe I should “Pre-Plan”?   …… ok… I’ll stop now.  Be in your ear next time.   I’m PRE-OBSESSED Paul Rosenblum.