Getting Ready for Year-End Starts Now
You may be lamenting the fact that stores already have Halloween decorations out but, here at The Bookkeeper, we are already preparing for year-end.
In an effort to help our clients (and everyone else) get ready, we’re putting out a list of things you can start doing now to ensure a smooth first quarter and segue into tax season.
Hire a tax preparer.
If you don’t already have a CPA or EA lined up for your year-end taxes, start interviewing now. They will get very busy by the end of the year, and the good ones tend to fill up on clients quickly. (If you need a referral for a good tax preparer, we are happy to provide some!)
Get last year’s records handy.
If you are using a new tax preparer, they will likely want to see a copy of your prior year tax returns. If available, a copy of your balance sheet from the end of the prior year will be helpful, as well.
Check your sub-ledgers.
If you have a copy of your balance sheet handy, it’s a good idea to go ahead and take a look at your sub-ledgers, your Accounts Payable and Accounts Receivable. It may be that interest hasn’t been properly recorded on some of your loans, and that you are missing out on a deductible expense there. Or, if you are accrual-basis and have receivables outstanding, you want to either follow up on those clients for payment, or write off any unrecoverable invoices, so you aren’t liable for taxes on income which you’ll never receive.
Review uncleared transactions and amortizable expenses.
If you are filing accrual-basis, you will also want to be sure you have a record of checks which were written but have not cleared the bank, as these expenses should be deductible in the same calendar year they were incurred.
Also, if you have any assets on the books for prepaid expenses, be sure those were expensed properly throughout the year, so they will lower your taxable income.
Prepare your 1099 list.
You will be liable for filing 1099s for any non-incorporated service provider to whom you have paid over $600 in cash receipts within the calendar year. To file 1099s, you will need a W-9 from each vendor fulfilling that criteria, and a total of how much you paid them this year.
What’s worse is that 1099s are actually due not at tax time, but at the end of January, and the penalties for late or missing 1099s are stiff. So start gathering that information now!
Start your payroll reconciliations.
If you have staff, or yourself, on payroll via an outsourced service, it’s a good idea to review the reports on a quarterly basis, to make sure that what you have in your set of financials matches the payroll provider’s records. You want to also ensure that any taxes they have taken on the responsibility of paying have been paid in a timely fashion.
W-2 corrections take time, and you can be liable if W-2s are late. If there’s an issue in your payroll reporting, it’s best to locate it before year-end, when the payroll companies will be at their busiest.
Finally, don’t forget that any bonuses you plan to pay employees around the holidays are treated as W-2 earnings, and should be run through regular payroll.
Pay your quarterly estimated self-employment taxes.
Paying in on a quarterly basis is a good way to avoid a massive tax bill the following spring. But be aware, the next due date is only 9 days from now, on September 15th!
Make sure you’re not missing anything.
Be certain there’s a record of any business expenses you might have paid out of personal accounts, and that any transactions which have been uncategorized to this point are properly allocated. And if you find that it’s been an unexpectedly successful year and you need to lower your taxable income, (particularly if you’re cash-basis), you might want to consider going ahead and paying for some of your typical January expenses earlier, in December before the year ends.
Ask for help, if you need it.
If you’re finding that you don’t have an up-to-date set of books, and you’re feeling overwhelmed, don’t be afraid to ask for help. If you’re already behind, the last thing you want to worry about is catching up your books over the holidays. We’re here to take that off your plate so you can focus on the things that matter most to you at this time of year.
Staying (Financially) Fit Over the Holidays
With Halloween only 12 days away, we are officially in the holiday season. This is my favorite time of year, and I understand the temptation to let work slide as I give into the distraction of Thanksgiving, Christmas, and vacation.
But holiday season coincides with year-end and, for businesses, this needs to be a time of focus. Just as it's easy to undo months of dedicated diet and exercise with the wild abandon of the holidays, it's easy to let your business financials slip at the time when you really need them at their peak.
Here are a few common bookkeeping issues we see in Q4 year after year, and how to avoid them.
Missing Deductible Expenses
The holidays are a great time to let loose and be more sociable with co-workers, clients, and referral partners. But just as you lose count of how many calories you're taking in, you can lose track of the money you're spending. Not only can this result in overspending, of course, but you can also be missing out on deductible expenses that will save you money in just a few months at tax time.
Perhaps you're planning an office Christmas party for your staff. Not only would those expenses be deductible, even food purchased for a potluck, but any staff appreciation gifts you'd like to hand out, as well. The same goes for client or vendor appreciation gifts. (If you have someone external doing your books, be sure they're asking about purchases for things like massage gift cards and fruit baskets, and recording them as business expenses, not draw activity.)
Many networking groups hold a special holiday party. Not only would any food and drink you purchase for that be deductible, but also mileage to the event. If you're having trouble keeping up with your mileage, something as simple as a mileage log (free to download here) in your vehicle or as sophisticated as an app can do wonders to help you track that.
Whatever you do, be sure you're keeping proper record of your business expenses, even while you party it up.
Falling Behind on Bookkeeping
Between parties, travel, and employees being out sick from all the germs they picked up partying and travelling, it's easy for certain tasks to get a bit behind in the later part of the year. However, bookkeeping is not like cleaning the house; you can't just plan to catch it all up at once. If I don't clean my house for a month, it's not that much more difficult, proportionately, than if it's not cleaned for a week. Bookkeeping doesn't work that way. If your bookkeeping takes four hours a month and you fall three months' behind, you now have twelve hours worth of bookkeeping to do. (And finding twelve hours for a task you like is difficult enough; imagine trying to find half an entire day to dedicate to a task you dislike.)
Many business owners who find themselves in the position of staring down months of untouched financials make the decision to get some outside help, just to catch things up. The problem is that they're in good company. Beginning in November, professional bookkeepers get very busy with new clients who are hoping to get their books cleaned up for year-end. Not only is there an influx of new clients, but existing clients continue to need service, and we're busy getting all of their year-end documents ready as well. Many of my friends who work solo or operate smaller firms do not take on any new work during this time of the year.
If you aren't certain that you'll be able to keep up with your financials on your own during the holiday season, begin seeking assistance now, before you get too busy.
Not Preparing for Next Year
(NOTE: If you are one of those people who files an extension out of habit, this is for you.)
You may not realize it, but there is a lot you can be doing right now to get ready for next year's tax season.
Just like you don't have to wait to make a New Year's resolution to start getting fit, you don't have to wait for January 1st to start getting your books in shape for tax season. For starters, you can be preparing for the January payroll reporting rush. In the chaos of year-end, many business owners forget that 1099s and W-2s are due at the end of January, and not in April. To prepare, you can be sure that you have W-9s, W-4s, and any required state tax documents on hand now, instead of trying to get them from workers later. (This is especially true of 1099 contractors, as they may work for you for a much shorter season and can be harder to track down later.)
If you have been using an outsourced payroll system, be checking now to ensure that the payroll reports in your financials match those provided by the vendor. Sometimes errors do occur, and you will need to alert the payroll company right away if their totals are incorrect. (Like bookkeepers, they are getting very busy this time of year, too.)
You want to check to make sure that your sub-ledger totals, such as your Accounts Receivable and Accounts Payable, match your General Ledger balances. You also want to be sure that you are up-to-date on any reconciliations.
Finally, it's a good idea to take some additional tax-sheltering steps. For example, if you had a good year and are cash-basis, consider making a large business purchase in December instead of January, to reduce your taxable income. Or maybe you have not been paying enough into your withholdings or your quarterly estimated self-employment taxes, and need to increase those in December. There are many options available to you, but you need to act now.
Fortunately, you still have some time to make the most of your holiday season. Stay on top of your books as you go, and you will have a restful and relaxing January (at least compared to everyone who didn't put in the work during December). If you need help, we are always available.