The May Cleanup: What Your 2025 Tax Return Just Told You About Your Books

Why May Is the Best Month to Clean Up

Most owners think about bookkeeping cleanup once a year — usually in February, right before tax prep. By then it is too late. Your CPA needs the books in a week. The cleanup happens in a panic. Mistakes get baked into the tax return.

May is different. Three reasons:

• The mistakes are still visible. The 1099-K mismatches, missing receipts, and weird transactions are fresh. Wait three months and you will not remember what they were.
• Your bookkeeper has time. April was their busy season. May is when they actually have hours to dig into a real cleanup.
• You have time to set up a system. A May cleanup is not just about fixing the past — it is about putting a process in place so this is the last cleanup you ever do.

For a deeper look at building good habits, see our guide on audit-proof bookkeeping habits.

The 7 Pain Points Tax Season Just Exposed

If you went through tax prep, you probably hit at least three of these. None of them are unusual. All of them are fixable.

1. Missing receipts. Your CPA asked for documentation on a deduction and you could not find it. Easy to fix going forward with a receipt-capture app.
2. Transactions you could not explain. A $4,200 charge from "Square" that nobody remembers. Usually a vendor name change or a forgotten subscription.
3. Personal charges on the business card. Groceries, family dinners, that flight to Vegas. Need to be re-categorized as owner draws.
4. Unreconciled accounts. Your bank balance and your QuickBooks balance do not match. This is the single most common cleanup issue.
5. Missing 1099s. You paid a contractor over $600 and forgot to send a 1099-NEC. The IRS gets a copy from them anyway.
6. 1099-K mismatches. Your Stripe or PayPal 1099-K showed more revenue than your books did. The IRS notices.
7. Wrong categories. A bunch of transactions ended up in "Ask My Accountant" or "Uncategorized Expenses." That is your bookkeeper telling you they did not know what to do.

If you skipped the cleanup last year, these all rolled forward into 2026. They are still in your books. Now is the time to fix them.

The IRS Is Watching Closer in 2026

For most of the last decade, the IRS was understaffed and underfunded. Audit rates were low. Notices were rare. Many small business owners got used to filing imperfect returns and never hearing about it.

That has changed.

In 2026, three things make IRS scrutiny much more likely:

• Better data matching. The IRS now automatically cross-checks the income on your return against 1099-Ks, 1099-NECs, W-2s, and bank reports. A mismatch generates an automated notice.
• Lower 1099-K thresholds. Online platforms now report payments at a much lower dollar threshold than they used to. Many small sellers and side businesses are getting 1099-Ks for the first time.
• Improved enforcement systems. The IRS has invested in modern systems that flag inconsistencies, unusual deduction patterns, and round-number expenses for closer review.

For most owners, the answer is not panic. It is clean books. If your reporting matches your bank deposits, your 1099s, and your payroll filings, you are protected. If it does not, you are exposed.

Our guide on how to avoid an IRS audit walks through the most common red flags.

The 1099-K Trap

Of all the cleanup issues we see, the 1099-K mismatch is the one that bites the hardest. Here is why.

When you take payments through Stripe, Square, PayPal, or any other processor, that processor sends you a 1099-K at the end of the year. They also send a copy to the IRS. The number on the 1099-K is the gross amount the processor handled for you.

The trap: the gross amount on the 1099-K is usually higher than what you actually deposited into your bank. Why? Because the 1099-K does not subtract refunds, processor fees, or chargebacks. So if you record only the net deposits in your books, your revenue will look lower than the IRS thinks it should.

The fix is to record gross revenue in your books, then record processor fees and refunds as separate expense or contra-revenue lines. That way, the IRS sees the same gross number you reported on Schedule C or your S-Corp return.

If you sell on multiple platforms, this gets complicated fast. Our guide on the online sales tax guide and year-end accounting for online sellers goes deeper.

Personal Expenses on the Business Card

If you have ever used the business credit card for personal stuff — groceries, a flight, a gift — you are not alone. Most owners do it. But it creates real problems.

Why it matters:

• It muddies your books. Personal charges in business expenses make your reports inaccurate.
• It can put your S-Corp at risk. Comingling is one of the things the IRS looks at when they consider whether to disregard your corporate structure.
• It makes audits worse. If you are ever audited, every personal charge on the business card becomes a question.

The May cleanup for this is straightforward:

1. Pull your business credit card statements for the past 12 months.
2. Highlight every personal charge.
3. Reclassify each one as an owner draw (sole proprietor or LLC) or shareholder distribution (S-Corp).
4. Open a personal credit card if you do not already have one.
5. Going forward: never run personal charges through the business card.

For a refresher on what counts as a real business expense, see our guide on how to track business expenses.

The Bank Reconciliation Reset

A bank reconciliation is the process of making sure every transaction in your accounting software matches what actually happened at the bank. If your QuickBooks shows $42,317 in checking and your bank shows $39,981, you have an unreconciled account.

Unreconciled accounts are the root cause of most bookkeeping problems. Here is what causes them:

• Transactions entered twice (duplicates)
• Transactions never entered at all
• Transactions entered with the wrong amount
• Transactions categorized as transfers when they are not, or vice versa
• Old uncleared checks that should have been voided

The May reset is to reconcile every account from January 1 forward. Bank accounts. Credit cards. Loan accounts. Payment processors. Every one of them, every month, reconciled to zero.

For our take on doing this every week instead of every month, see our guide on why to reconcile your books weekly.

Setting Up a Monthly Close

A cleanup fixes the past. A monthly close stops the past from repeating.

A monthly close is a defined process that closes out one month and starts the next. It usually includes:

• Reconciling every bank, credit card, and loan account
• Reviewing every uncategorized transaction
• Posting payroll, depreciation, and other monthly journal entries
• Reviewing the P&L and balance sheet for anything that looks off
• Locking the prior month so no one accidentally edits closed transactions

A good monthly close is finished by the 15th of the following month. So April books are closed by May 15. May books are closed by June 15. And so on.

If you do this every month, you never need a year-end cleanup again. Tax prep takes a week, not a month. And you actually have useful financial reports to run your business with.

The 30-Day May Cleanup Checklist

Here is a simple week-by-week plan to get it done in May.

If your books are too far behind to do this in 30 days, that is a sign you need outside help. Most cleanups can be finished in four to six weeks with the right team. Our guide on 5 signs you need accounting help walks through when to call in support.

Clean books are not a luxury. They are how you run your business, plan your taxes, and stay out of trouble with the IRS. May is the month to get them right.

Frequently Asked Questions