10 steps to streamline tax preparation

Every year, accounting and bookkeeping practices have to take care of tax preparation. With many compliance tasks to take care of, it makes sense to find a more simplified and structured way to handle accounts production and tax preparation.

Managing multiple clients, each with their own preferences for communicating, providing supporting documents, and collaborating with you, isn’t easy. And, when there are plenty of other tasks to get done it can be tough to keep on track.

In this guide, we show you how to refine your tax preparation processes so that the busy season feels less overwhelming and more rewarding.

Step 1: Organising and reviewing client data

Every transaction needs to be accounted for before you can begin tax return preparation. So, when clients hold out on providing receipts or leave you without clear documents, it makes the business tax preparation process more time-consuming.

Get ahead of this early, by organising and reviewing client data ahead of the deadline. Make sure you have all client records – including bank statements, receipts, bills, and invoices – ready to reconcile and code transactions accurately.

Let clients know early and speak to them about deadlines regularly so they’re front of mind. In the rush of running a business, your clients could overlook important deadlines or compliance requirements. Communicate these consistently, so deadlines aren’t forgotten and penalties and aren’t incurred.

It might also be useful to introduce preliminary reviews of client accounts a month or two before you plan to draft their returns. This way you can identify discrepancies or gaps before it gets too close to the deadline.

To make things even easier, you could introduce a single system for capturing documents and getting them into your accounting software. When you use Xero accounting software, you get access to apps like Hubdoc, which allows your clients to snap a photo of a receipt and upload it directly to Xero. Hubdoc extracts the transaction information and captures it in Xero, ready for you to match and code.

Though software tools can be a learning curve, with all your clients sharing evidence using the same system, you only have one process to manage. Plus, there’s no risk of a lost paper receipt, bill, or invoice derailing your progress.

Step 2: Automating repetitive tasks

Some tasks demand your hard-won expertise and experience, whereas others can be automated.

Repetitive, admin-intensive jobs are ripe for automation because they keep you from doing deep, strategic client work. Using tools that categorise transactions, generate and send invoices, and track payments for your clients can save you time and ensure accuracy for when you come to prepare their tax returns.

Start your automation journeys with something small – like automating recurring invoices on behalf of your clients. That way, you don’t need to be there to hit ‘send’ every month, and the invoice goes out automatically. From here, you can automate invoice follow-ups to help your clients get paid on time and maintain healthy cash flow.

With modern accounting software, the automation options don’t stop there. Xero users get access to bank feeds which automatically pull in transactions from your client’s bank accounts. Reconciliation predictions also speed up bookkeeping tasks with automation, by suggesting matches for transactions based on past data. You can schedule bill payments and invoices too, so clients are getting tasks completed without you needing to do as much admin.

3. Standardising data collection

Getting information from clients in various formats means you need multiple processes to handle it.

Physical receipts need to be scanned and typed up. While PDF invoices sent via email need to be downloaded and re-uploaded to accounting software. These are additional admin steps you could do without.

But, if you standardise how you collect data – with a single system or process – you don’t need to spend as much time typing up transaction details or emailing clients.

Start by letting clients know exactly what kind of information you need to gather for tax prep. You could create a checklist that outlines the documents and data required. For example, for income tax preparation, you should include expense receipts and interest statements.

Give clients clear instructions and firm deadlines that leave you plenty of time to source missing information. And, consider opting for a single system for data collection – doing this with software means everything is captured in a cloud-based environment, securely. With Xero, apps like Hubdoc let your clients snap photos of receipts and send them directly to Xero. The transaction information is extracted from physical receipts, ready for you to reconcile in Xero – no manual data entry required.

Step 4: Using financial reports to ensure accuracy

Financial reports play a vital role in business tax preparation, and can help you spot inaccuracies, missing data, and even identify fraud. Set some time aside to generate financial reports and review them with clients to ensure they’re accurate. You may want to compare them with historical reports to spot discrepancies and see how their performance compares to the previous year.

What’s more, creating reports can help your clients plan for their tax bill. By seeing their gross and net profit laid out clearly, you can make estimations on how much their bill will be. Doing this ahead of time means your clients have a greater opportunity to save cash and pay off the full bill.

Creating financial statements and reports without software is admin-intensive. You need to gather the right data, categorise it, and calculate total sums for things like income and allowable expenses.

With accounting software, creating financial statements and reports is fast and simple. With Xero, if reconciliations are up to date for your clients, you can generate accurate reports in a couple of clicks using live accounting data. Compare current tax years with previous ones to track performance, and share the reports securely from inside Xero with your clients.

Step 5: Maintaining clear communication

While much of the complex compliance work comes down to you, maintaining clear communication with clients throughout the tax preparation process helps everyone play their part.

Clients might be aware of business tax return deadlines, but consider giving them practice deadlines to make sure you have everything you need from them ahead of time. Communicate these deadlines regularly in multiple channels – on the phone, via email, and when your clients visit you in person. Consider creating a shared digital calendar for your clients to track deadlines, too.

To help clients anticipate when their help is required, provide regular tax prep status updates. You could schedule some time to discuss outstanding items and any questions or concerns they might have, so everyone’s on the same page.

Communicating clearly with your team is just as important as managing client comms. Having a single project management system helps here, because it helps you track client tasks in one place. You don’t need to share it externally, but you can refer to it when you let clients know the status of their tax prep.

On the Xero partner programme, partners get access to Xero Practice Manager, a complete system for assigning, tracking, and delivering tasks. You can see job status at a glance, assign jobs to your team, and check their capacity to take on more work.

Step 6: Reconciling accounts regularly

Whether you or your clients are responsible for reconciling their accounts, doing it regularly will make tax prep run more smoothly.

It’s easier for clients to recall what a transaction was for when you’re reconciling them regularly, and closer to the date they occurred. It’s also easier to source evidence if clients need to find a receipt from last week, instead of one from last year.

Regular reconciliation is more manageable because you’re breaking the job down into smaller, frequent tasks. You can do a little bit of reconciliation work each month or quarter for clients, instead of having to take care of it all at once.

Step 7: Using tax software and integrations

Every practice could use an extra pair of hands at tax time. But, with modern accounting software and apps, plenty of tax preparation tasks can be taken care of by technology. Here are some examples:

• Instead of typing in receipts, invoices, and bills, your clients can snap a photo of documents with their smartphones and upload digital copies to accounting software
• Instead of getting bank statements from your clients to review their transactions, they can connect their back account to accounting software so that income and expenditure flows in automatically
• Instead of copying income and expenditure records from a bookkeeping system into a separate tax return, software automatically pulls bookkeeping records into a draft tax return for you to review and finalise

With software like Xero you get all of these benefits, plus a direct connection to HMRC so that tax returns can be filed online. And, there’s a live testing feature that lets you check drafted returns with HMRC to see if they’ll be accepted. These features are designed to save you time and reduce errors, so you don’t need to complete as much manual admin or redo work.

8. Staying informed about compliance changes

Regulations change and your practice and clients need to be prepared. In the last few years, we’ve seen Companies House reform, Basis Period reform, and the introduction of Making Tax Digital.

Annual changes to tax rates and national rates of pay are also common, so you may need to adjust your compliance processes every year, and often more frequently. If you’re not keeping up with compliance changes, you put your practice and clients at risk of penalties and fines. So, staying on the right side of regulation can make a financial difference, too.

There are plenty of ways to stay in the loop. You could subscribe to newsletters from industry bodies, attend webinars, or join professional associations that keep you informed. At Xero, we have plenty of resources to help with tax preparation and compliance. Find accounting and bookkeeping guides, as well as everything else you need, right here.

9. Refining workflows

Taking a closer look at your tax preparation processes will help you spot opportunities to simplify or speed things up.

For example, if you lack a single system for managing tasks, time could be wasted duplicating work or overlooking unassigned jobs. Using practice management software will help everyone keep on track, and make it easier to see where you’re up to.

You can also use your practice management software to delegate more effectively – for example, checking your staff’s capacity and reviewing which non-core activities can be passed to other team members. Perhaps, you could batch tasks together, so certain members of staff take care of specific jobs. One person could be responsible for gathering evidence, another could take care of income tax preparation, and so on.

Software can help you see who and what resourcing you have available. With Xero’s software for handling team workloads – Xero Practice Manager – you can view your staff’s capacity and progress on tasks, making it easier to delegate to the right person. And, with a clear view of deadlines, deciding what works should be prioritised is easier too.

Plus, with Xero’s accounts and tax prep software – Xero Tax – you can assign specific roles to your team like ‘preparer’ and ‘reviewer’, so teams have permission to complete certain tasks in the software. This also means you can control quality and ensure work is completed to a high standard.

10. Conducting a post-tax season review

Once all returns are filed away, it’s time to review what worked and where you can improve.

While tax preparation is still front of mind, you could see opportunities to make things run better. Get the whole practice team together to discuss what worked well and what didn’t. Once you’ve identified areas of opportunity, create an improvement plan. You could assign improvements to specific members of staff, or work together to make things better. Just make sure you’re tracking changes to see if they’re working.

Include your clients in the review process too, since their feedback could help you deliver a better experience for them. Ask if there’s anything you can do to make the tax return preparation run smoother. You could gather feedback with a form, or in person.

Why Xero is the ideal software for simplifying tax preparation

Xero is designed to make tax preparation simple for your practice and clients. Our software does this by giving your access to features that reduce admin, make collaboration easier, and provide a secure, central space for storing records and documents. Here’s how you benefit:

• Centralised document management: Xero online file storage keeps all your important documents saved in a single, secure place. Files are easily retrievable, can be attached to transactions, and you can check the data in Xero against the original document in a side by side view for accuracy.
• Automated processes to save time: From getting data in to submitting returns, Xero has automations that speed things up every step of the way. With bank connections, your clients’ transactions flow into Xero automatically. Reconciliation predictions make matching transactions fast, simple, and accurate. And, the connection between Xero bookkeeping and tax products means tax returns are auto-populated with the right records, so you don’t need to copy figures across manually.
• Better collaboration and workflow: Whether you’re working with your team or clients, Xero makes collaboration more connected and productive. Assign, track, and manage tasks with Xero Practice Manager – see exactly where your team is up to, and their available capacity. Share reports and documents securely inside Xero with your clients for eSignatures and collaborative working. Add apps your clients already use or new ones that help improve your process to keep work flowing.

Next steps to refine your client tax preparation

By following these steps to simplify client tax preparation, you can save time, reduce stress, and find new opportunities to add value for clients.

The right software goes a long way towards making tax preparation less of a headache and more smooth sailing.

Practices and clients love the ease and simplicity of Xero. Explore all features today and see how our software can make your business’ compliance run more smoothly.