What Your Bookkeeper Needs From You Each Month

Should my bookkeeper expect me to categorize expenses, or is that their job?

Whether the owner or the bookkeeper categorizes expenses is decided by the written scope, not by tax law. The law requires records that support the return and, except in a few cases, sets no format, so you or the bookkeeper can categorize, as long as the books clearly show income and expenses (Publication 583; IRS: Recordkeeping). What no bookkeeper can supply is what exists only on your side: why you paid, who you met, what a deposit was.

A workable split: the bookkeeper categorizes what the bank and card feeds show and asks about the rest; you answer, send what is missing and keep the records. Write it down, or the work drifts back to you.

The case is not simple when questions keep piling up and you still categorize on weekends, when the books are behind a return, when there is payroll or contractor pay, when personal and business money share an account, or when the business takes cash. If the first two sound like you, put the split in writing and expect the months that are behind to need a catch-up first. Each case is covered below.

Gather first: statements for every bank and card account (unless the bookkeeper can download them), receipts and notes for unclear charges, unpaid customer invoices and vendor bills, payroll reports, W-9s from US contractors, loan statements and your answers to open questions.

What does a bookkeeper need from me every month?

A bookkeeper needs what the feeds cannot show. Send it in one batch after the statements close, not item by item.

For what the bookkeeper hands back each month, see what a monthly bookkeeping service includes.

Do I still need receipts if the bank feed is connected?

Often, yes: a bank or card feed does not show what the money bought, so a receipt or note is needed wherever the statement leaves that open. Publication 583 says proof of payment, by itself, does not establish a tax deduction, and tells you to keep documents such as credit card sales slips and invoices to show you incurred the cost (Publication 583). The IRS says supporting documents should identify the payee, the amount paid, proof of payment, the date, and a description of the item or service that shows a business expense (IRS: What kind of records). A feed covers the first four, not the last.

Travel, gifts and car costs have extra rules. A receipt or similar proof is generally required for lodging and for any other such expense of $75 or more (a transportation cost is excused when a receipt is not readily available), plus, generally, a written statement of the business purpose recorded at or near the time. Amounts you approximate or estimate cannot be deducted (Publication 463). The IRS pages on general business records set no dollar cutoff for other expenses.

Ask the bookkeeper to name in the scope the dollar line above which they need a receipt. For a simple system, see record keeping for self-employed people; for what a valid receipt shows, IRS receipt requirements; for lost ones, lost receipts.

Which accounts, cards and payment apps must my bookkeeper see?

A bookkeeper needs to see every account where business money enters or leaves, including any personal account or card that ever paid a business cost. Publication 583 says records should identify the source of receipts, which you need to separate business from nonbusiness money and taxable from nontaxable income (Publication 583). An account the bookkeeper never sees becomes missing income or missing expenses.

• Business checking and savings accounts, and business credit cards.
• Any personal account or card that received business income or paid a business cost.
• Payment apps, card processors and marketplaces. A deposit may be a net amount, so the bookkeeper needs the payout report behind it; see reconciling sales and payouts.
• Loan and line-of-credit statements, and the payroll provider's reports.
• Accounts abroad and payment apps in another country that took in or paid out business money.

Seeing an account is not the same as moving money from it; see giving a bookkeeper access to your accounts.

Two things are worth keeping in your own hands. First, administrator rights to the accounting file: in an examination the IRS says it asks early for the accounting software backup file and the administrator's username and password (IRS: electronic accounting software records). Second, if you use a payroll provider, your own login to the IRS's Electronic Federal Tax Payment System (EFTPS) to check that deposits were made, and the IRS address of record in the business's name, not the provider's (IRS: Outsourcing payroll duties). A certified professional employer organization deposits under its own number, so its customers cannot see those deposits in EFTPS; ask it for proof of payment (IRS: CPEO customers).

How fast should I answer my bookkeeper's questions, and what happens when I do not?

A fixed answer window, written into the scope as a number of business days after each statement closes, keeps questions from piling up. No tax rule sets a response time, but the tax dates do not wait for an open question. These dates fall on the business whatever the scope says, so the bookkeeper needs the listed items before them.

A due date on a weekend or legal holiday moves to the next business day, and a Form 941 filer who made timely deposits in full may file by the 10th day of the second month after the quarter ends (Instructions for Form 941). Larger payrolls deposit sooner; the schedule depends on past payroll tax totals (Publication 15). State payroll and sales tax dates are separate and not covered here.

Unanswered questions have three costs. The books stay incomplete, so the reports you rely on are off. An expense you cannot explain may not be supported, because you must be able to prove certain elements of an expense to deduct it (IRS: Burden of proof). And memory fades: Publication 463 says a record made at the time has more value than one prepared later, when recall is poor.

In practice, unanswered charges often sit in an uncategorized account and the month stays open. Agree in the scope what the bookkeeper does once the window ends; see uncategorized expenses before tax time.

What payroll and contractor information do I owe my bookkeeper?

A bookkeeper needs payroll reports for each pay date, tax deposit confirmations and copies of returns filed. For each contractor who is a US person, the bookkeeper needs a Form W-9, best collected before the first payment, and a note of how the contractor was paid.

Payroll. Publication 15 says to keep employment tax records for at least four years; the regulation counts that from the later of the tax's due date or the date it is paid (26 CFR 31.6001-1(e)(2)). They include the amounts and dates of wage payments, tips employees reported to you, the dates and amounts of tax deposits with their acknowledgment numbers, copies of returns filed with confirmation numbers, and employees' Forms W-4 (Publication 15; IRS: Employment tax recordkeeping). For how a pay run is entered, see payroll journal entries.

Contractors. Form W-9 is how a payer gets a payee's name and taxpayer identification number; a foreign person may not give one, and uses a Form W-8 or Form 8233 instead (IRS: W-9 requester instructions). A W-9 is best collected before the first payment because a payer must generally withhold 24% of certain payments, nonemployee compensation included, if the payee does not give a correct number (Publication 15). The bookkeeper also needs the year's total paid to each contractor and how each was paid. Payments made by credit card or through a third-party payment network are reported by the payment company on Form 1099-K, not on Form 1099-NEC (IRS: 1099-MISC and 1099-NEC instructions).

For who gets a form, including payments to corporations, see which contractors get a tax form; for a contractor who will not give a number, collecting tax IDs from contractors; for a foreign contractor, paying contractors abroad.

What stays my responsibility even when someone keeps the books?

The records, the return and the payroll taxes stay with the business, not the bookkeeper. A bookkeeper does the work; the duty does not move.

• Records. The IRS says taxpayers fill out their own returns and are responsible for maintaining their own books and records (IRS: electronic accounting software records). Using a third party to provide custodial or management services for computer records does not relieve the taxpayer of its recordkeeping obligations (Revenue Procedure 98-25).
• The return. A preparer signs a return, but you remain accountable for the accuracy of every item on it (IRS Tax Topic 254).
• Payroll taxes. An employer is generally responsible for returns and deposits even when a third party does them, and remains responsible if the third party fails. With a certified professional employer organization, the organization is generally treated as the employer for the wages it pays, but the business may also be liable for the employment taxes on some of those employees (Publication 15; IRS: Outsourcing payroll duties).

Whether a bookkeeper's mistake shifts any cost is a separate question; see bookkeeper mistakes and who pays the penalties. To check the work, see checking your bookkeeper's work.

How do I stop mixing personal and business spending?

Stopping the mix starts with a separate business checking account. Publication 583 says to open one kept separate from your personal account, use it for business purposes only, and deposit all daily receipts in it (Publication 583).

• Many owners use one business card and keep personal charges off it.
• When you pay a business cost personally, send the receipt and say so, so the business can repay you. See business expenses on a personal credit card.
• Tell the bookkeeper whether each transfer is a loan, money you put in or money you took out. Publication 583 says to note a deposit's source and to write checks payable to yourself only for personal withdrawals.
• Avoid checks payable to cash. If you pay cash and cannot get a receipt, Publication 583 says to explain the payment in your records at the time.

Money already mixed is a clean-up job: see fixing commingled business and personal funds.

How do I get my evenings back: what to hand off and what to write in the scope?

An owner can hand off the repeating bookkeeping work and keep the decisions: answering questions, supplying documents and approving payments. Then settle the terms in writing, along with the receipt line above:

For wording, see what a bookkeeping engagement letter should say and questions to ask before hiring a bookkeeper. A restaurant or cash business should also ask how daily sales are recorded; see recording daily sales.

What if I am the spouse or partner doing the books for a family business and want out?

A spouse or partner who keeps a family business's books can hand them off, but the owners keep the responsibility.

1. List what you do each month, including jobs no one assigned, such as chasing receipts and paying bills. That list becomes the scope.
2. Move the repeating work to the bookkeeper. Leave with the owners the decisions only owners can make.
3. Give the bookkeeper access, the last filed return and the last month you are sure is right. See opening balances after changing accountants.
4. Some spouses keep their own access until the new bookkeeper has reconciled the first month.

If the business has employees, check payroll before you step back. Under section 6672, the trust fund recovery penalty is 100% of the unpaid withheld tax and may be imposed on a responsible person who acted willfully. Publication 15 says that can include someone who signs checks or otherwise has authority to cause the spending of business funds (Publication 15). The IRS generally has 3 years to assess it, counted from April 15 after the payroll year or a later filing date, and has no limit while a payroll return is unfiled (IRM 5.7.3). Who counts is in trust fund recovery penalty; if deposits are behind, see behind on payroll taxes.

Example

These examples are illustrative. All amounts are in US dollars.

A restaurant answers once a month

A restaurant's card statement shows 60 charges the bookkeeper cannot place. The scope gives the owner three business days after each statement closes to answer. The owner blocks one 30-minute session in that window, answers all 60 in one pass and sends the daily sales summaries with the bank deposits. In this scope the bookkeeper categorizes and the owner answers. The bookkeeper holds questions for that session instead of texting during dinner service.

A US$280 card charge

An online-shop owner's feed shows one US$280 card charge to a hotel during a conference trip. The bookkeeper can label it travel but still needs support for it. Lodging generally needs a receipt at any amount, so the owner sends the hotel receipt, the dates, the destination and the business purpose.

Two owners and a hand-off by the 10th

A landscaping LLC has two owners, and one keeps the books in her spare time. They hire a bookkeeper and hand over by the 10th of each month: statements for each account, payroll reports, W-9s for new subcontractors and answers to open questions. The owner who kept the books reviews each month's work in one short session, and the owners keep the business's EFTPS login to confirm payroll deposits.

Different for you?

• Questions keep piling up, you still categorize on weekends, or the books are behind a return: a monthly hand-off starts from closed books, so months that are behind usually need a catch-up first. See catching up on overdue books; for who does what each month, see bookkeeping services.
• You do the books for a family business and want out: see bookkeeping services and opening balances after changing accountants.
• You want to change bookkeepers: see replacing your bookkeeper and taking over books from a former accountant.
• Payroll deposits were missed or the IRS sent a payroll notice: see behind on payroll taxes and an IRS notice to your business.
• You pay people as contractors who work like employees: see contractors who may be employees.
• Personal and business money are already mixed: see fixing commingled business and personal funds.
• You run a restaurant or the business takes cash: see cash business sales records.
• You run an S corporation or several companies: see S corporation bookkeeping and books for several companies.
• You have accounts in other currencies: see foreign currency accounts in US books.