Last updated: February 11, 2026
If you want to reduce IRS matching issues in 2026, your numbers need to tie out across your bank activity, payroll filings, and third-party forms. A bookkeeping cleanup gets your data consistent so your CPA is not forced to guess.
This is for small businesses and startups that want clean books before tax time. You will get a bookkeeping cleanup checklist, what it usually costs, and how the process works.
Here is what changed, what to fix, and what to do next.
What's Changed with IRS Data Matching in 2026
If your books are behind, start with a bookkeeping cleanup. It is the fastest way to get your reports and filings telling the same story.
The IRS rolled out machine learning tools that cross-reference your income with data from banks, payment processors, and state agencies. Think of it as a constantly running audit that flags inconsistencies before you even file your return.
This isn't about catching fraud. It's about catching mistakes. And mistakes are everywhere when your bookkeeping isn't tight.
Here's what the system checks:
- Bank deposits against reported income
- 1099 forms against what you logged in QuickBooks Online or Xero
- Payroll filings (Form 941) against your recorded payroll expenses
- Sales tax remittances against revenue reported on state returns
The technology uses pattern recognition to spot anomalies. If your gross receipts don't match your bank deposits, you're flagged. If your payroll tax doesn't line up with your W-2s, you're flagged. If your sales tax remittance is off by 15%, you're flagged.
According to Accounting Today, AI-driven compliance monitoring is one of the top three trends shaping the industry this year.
Why "Close Enough" Bookkeeping is Now a Red Flag
You used to be able to wait until December to clean up your books. Not anymore.
The IRS's new system flags discrepancies as they happen. If your Q2 payroll tax filing doesn't match your internal records, the system notes it. If your sales tax payments to California don't align with the revenue you logged, it's recorded. By the time your CPA sits down to prepare your return, the IRS already has a list of questions.
Here's what triggers the system most often:
- Income categorized as "miscellaneous" or "other"
- Sales tax collected but not properly tracked
- Payroll expenses that don't match quarterly 941 filings
- Duplicate transactions or uncategorized deposits
- Business expenses mixed with personal transactions
These aren't intentional errors. They're the result of rushed data entry, inconsistent categorization, or just plain confusion about where things go.
A bookkeeping cleanup fixes these issues before they become audit triggers.
The Three Areas Where Clean Books Matter Most
We don't provide income tax advice. We work closely with your CPA to ensure they have the clean data they need to file your returns accurately.
Our focus is on the three areas where messy books create the biggest compliance headaches: sales tax, payroll tax, and business licenses.
Sales Tax Accuracy
If you sell physical products or certain services, you're collecting sales tax. That tax needs to match what you remit to the state. When your "Sales" account in QuickBooks or Xero includes both taxable and non-taxable revenue lumped together, your numbers won't align with your sales tax filings.
The IRS now cross-checks your gross receipts against state sales tax data. If there's a mismatch, both agencies start asking questions.
Payroll Tax Alignment
Every quarter, you file Form 941 to report payroll taxes. That form includes wages paid, federal income tax withheld, Social Security, and Medicare. If your bookkeeping shows different payroll totals than what you filed, the IRS's system flags it immediately.
This happens most often when:
- Payroll was processed but not recorded in your accounting software
- Bonuses or reimbursements were miscategorized
- Employer-side payroll taxes were posted to the wrong account
Business License Compliance
Some business licenses require proof of revenue to determine renewal fees or permit levels. If your books show $300K in revenue but your business license application listed $150K, that discrepancy creates a red flag that can ripple into IRS scrutiny.
Clean books give you a single source of truth across all filings.
What our bookkeeping cleanup includes
You are trying to get every key number to agree across your bank feeds, payroll reports, sales tax filings, and year-end forms. That is what a bookkeeping cleanup is for.
Here is what our bookkeeping cleanup typically includes (you can also use this as a DIY checklist).
Transaction review
- Reconcile every bank and credit card account for the past 12 months
- Categorize all "uncategorized" and "miscellaneous" transactions
- Remove or correct duplicates
- Confirm chart of accounts is usable (not 8 versions of the same expense)
Income verification
- Match deposits to invoices, POS reports, and payment processor payouts
- Separate taxable and non-taxable revenue where relevant
- Confirm 1099 income is recorded correctly
- Verify owner contributions and transfers are not sitting in income
Expense accuracy
- Review high-dollar expenses (often $500+ is a good start)
- Move personal items out of business accounts (confirm with your CPA on treatment)
- Clean up vendor names and consistent categories
- Confirm loan and credit card payments are not double-counted
Payroll and tax alignment
- Match payroll expense and liabilities to quarterly filings (like Form 941 summaries from your payroll provider)
- Verify payroll tax liabilities are recorded and paid
- Check sales tax collected matches remittances (if you collect sales tax)
Document organization
- Attach receipts and invoices inside QuickBooks Online or Xero where possible
- Store W-9s, 1099s, and contractor agreements in a secure folder
- Create a folder structure for monthly statements and quarterly filings
This is the core of a bookkeeping cleanup. The right scope depends on how far behind you are and what your CPA needs.
Transaction Review
- Reconcile every bank and credit card account for the past 12 months
- Categorize all "uncategorized" or "miscellaneous" transactions
- Remove duplicate entries
Income Verification
- Match all deposits to invoices or sales records
- Separate taxable and non-taxable revenue
- Verify that 1099 income is recorded correctly
Expense Accuracy
- Review every business expense over $500
- Move personal expenses out of business accounts
- Confirm vendor names and categories are correct
Payroll and Tax Alignment
- Match payroll expenses to quarterly 941 filings
- Verify that payroll tax liabilities are recorded and paid
- Check that sales tax collected matches remittances
Document Organization
- Attach receipts or invoices to transactions in your accounting software
- Store W-9s, 1099s, and contractor agreements in a secure location
- [] Create a folder structure for quarterly filings
This checklist takes most businesses between 8 and 20 hours to complete, depending on the size and complexity of your records.
How much bookkeeping cleanup costs
Most bookkeeping cleanup projects are priced based on time, because the time depends on how many months are unreconciled and how messy the transaction detail is.
Common cost drivers:
- How many months are not reconciled
- How many transactions are uncategorized or duplicated
- How many accounts are involved (bank, credit cards, loans)
- Payroll complexity (employees, contractors, benefits)
- Sales tax complexity (multiple states, taxable and non-taxable revenue)
- Whether supporting docs exist (statements, receipts, payroll reports)
A practical way to estimate:
- Light cleanup (1 to 2 months behind): often 5 to 10 hours
- Moderate cleanup (3 to 6 months behind): often 10 to 25 hours
- Heavy cleanup (6 to 18+ months behind): often 25+ hours
Confirm scope and pricing with your bookkeeper after a quick review.
Example with simple numbers
A consulting firm with $400K in annual revenue was in QuickBooks Online and had not reconciled 18 months of accounts. They hired us for a bookkeeping cleanup in January 2026.
What we found
- 112 uncategorized transactions totaling $87,000
- $23,000 in personal expenses mixed into business accounts
- Sales tax collected but not separated from revenue, creating a $6,400 discrepancy with state filings
- Payroll recorded inconsistently, with a $9,200 gap between their books and their 941 filings
What we fixed
- Reconciled 18 months of transactions (14 hours)
- Reclassified expenses and separated personal items (6 hours)
- Aligned sales tax and payroll records with filings (4 hours)
- Documented everything for their CPA (2 hours)
Total cleanup time: 26 hours at $85/hour = $2,210
We do not provide income tax advice. Confirm any tax treatment with your CPA.
How long the cleanup process takes
The timeline depends on two things: how many months you need to catch up, and how fast you can provide documents and answers.
Typical timing for a bookkeeping cleanup:
- Light cleanup: 1 to 2 weeks
- Moderate cleanup: 2 to 4 weeks
- Heavy cleanup: 4 to 8+ weeks
What slows it down:
- Missing bank statements or loan statements
- No access to payroll reports (941 summaries, payroll registers)
- Unclear owner transactions or mixed personal and business spending
- Multiple payment processors with deposits that need mapping
Why your CPA needs clean data
Your CPA can only file accurately if your books are consistent and supported. Clean data means your Profit and Loss, Balance Sheet, and transaction detail match the real-world source documents.
A bookkeeping cleanup helps your CPA:
- Tie bank deposits to income (and explain what is not income)
- Support deductions with proper categorization and documentation
- Reconcile payroll expense and payroll tax liabilities to filings
- Reduce back-and-forth questions during tax prep
- Avoid filing off numbers that do not match third-party forms
Disclaimer: We do not provide income tax advice. We work closely with your CPA to ensure they have the clean data they need to file your returns accurately.
How Books LA works with your CPA
We handle the bookkeeping. Your CPA handles the tax strategy and filing.
Here's the typical workflow:
- You grant access to QuickBooks Online or Xero, bank feeds, and your payroll system.
- We run a bookkeeping cleanup: reconciliations, categorization, and tie-outs to payroll and sales tax activity.
- We deliver CPA-ready reports: Profit and Loss, Balance Sheet, and the transaction detail your CPA will ask for.
- Your CPA files using clean, supported numbers.
- You stay current with monthly bookkeeping (optional, but it prevents another big cleanup).
We are Los Angeles-based, and we are certified ProAdvisors for QuickBooks Online and Xero.
CTA: If you want help scoping your books, request a bookkeeping cleanup service review.
Your Weekly Action Plan
You don't need to fix everything at once. Break it into steps.
Week 1: Assess
- Pull your last three months of bank statements
- Open your accounting software and count how many uncategorized transactions you have
- Note any obvious discrepancies (big deposits that aren't recorded, expenses that look wrong)
Week 2: Reconcile
- Reconcile your primary business checking account for the past 90 days
- Categorize any transactions marked "uncategorized" or "other"
- Flag anything you're unsure about for follow-up
Week 3: Align Tax Filings
- Compare your payroll expense in your books to your last 941 filing
- Compare your sales tax liability to what you actually remitted to the state
- Note gaps and research what happened
Week 4: Document and Decide
- Attach receipts to key transactions in your software
- Decide whether to finish the cleanup yourself or bring in help
- If you're hiring a bookkeeper, schedule a call to review what you found
If you're staring at 18 months of backlog, skip straight to Week 4 and bring in support.
Your weekly action plan
You do not need to fix everything at once. Do the minimum that gets you accurate reports and clean tax support.
Today (30 minutes)
- Download the last 2 bank statements and credit card statements
- Open QuickBooks Online or Xero and check unreconciled months
- List your connected tools (payroll, POS, payment processors)
This week
- Reconcile your main checking account for the last full month
- Clear uncategorized transactions for that same month
- Pull payroll summaries for the last quarter (from your payroll provider)
This month
- Decide your scope: last 3 months, last 12 months, or multi-year
- Complete the remaining reconciliations
- Export and save: Profit and Loss, Balance Sheet, and general ledger for your CPA
FAQ: Bookkeeping cleanup for IRS data matching
Q1: How much does bookkeeping cleanup cost?
It depends on how far behind you are and how many accounts you have. Most projects are priced by time after a quick review.
Q2: How long does a bookkeeping cleanup take?
Many cleanups take 1 to 4 weeks. Bigger backlogs can take 4 to 8+ weeks, mostly based on document turnaround.
Q3: How far back should I go?
At minimum, clean up the current tax year. If last year is not filed or your CPA asks for it, include the prior year too.
Q4: What documents do you need from me?
Bank and credit card statements, loan statements if you have them, payroll reports, and access to your accounting file. If you use payment processors, we also need payout reports.
Q5: Do you work in QuickBooks Online and Xero?
Yes. We work in both, and we are certified ProAdvisors for QuickBooks Online and Xero.
Q6: What if I mixed personal and business transactions?
It is common. We will separate them so your business reports are usable. Confirm any tax treatment with your CPA.
Q7: Can I do a bookkeeping cleanup without receipts?
Often yes, but you may lose support for certain deductions. Confirm documentation requirements with your CPA.
Q8: Will a bookkeeping cleanup prevent an audit?
No one can promise that. A cleanup reduces mismatches and gives your CPA better support if questions come up.
Want us to handle this?
If you want us to run your bookkeeping cleanup, start with a one-line request for our bookkeeping cleanup service.
