Do you know what you need to accomplish to prepare for tax time? What steps do you need to take now to ensure a smooth transition into the coming business year?
This year-end checklist for small business owners will help ensure you’ve got your ducks in a row come the new year and tax filing time.
Your Year-End Checklist For Small Business Success
It’s tempting to wait until January to prepare your business for tax time. However, waiting until “crunch time” can mean you end up missing vital tax moves.
Missing these vital steps can result in income loss, tax penalties and more. Unorganized tax records can also trigger a small business tax audit.
Instead of putting your business at risk, use this checklist now to prepare your business for a smooth transition into the coming year.
Related: How To Prepare For A Small Business Audit (And How To Avoid One)
1. Collect And Organize All Bank Statements And Credit Card Statements
Your bank account and credit card statements are vital for proving the accuracy of your income and expenses. If you’re running on cash, it’s important to deposit all of that earned income in your bank account for record-keeping purposes.
Gather your mailed statements, and print out or download your e-statements for all business-related accounts. Make sure you’re not missing anything, and have them all in order. Keeping a second copy on hand–whether a hard copy or virtual copy–won’t hurt either.
When it comes to business ownership, you can never be too prepared.
2. Make Sure Sales and Income Records Are Up-To-Date
This is where your organized bank statements and credit card statements will come in handy. Ideally, you’d use a program such as Quickbooks, Xero or Wave to track your sales and income. Your accountant can help you determine which accounting program is best for your business.
Sales and income records should be tracked by date and vendor or client. Each entry should contain the date, who paid you and how much they paid you.
Outstanding invoices still waiting for payment are important to have in order as well.
3. Verify And Review The Year’s Expenses
Have you tracked your expenses on your accounting program or in your ledger? If not, now is the time to do so. Again, date, vendor and amount are vital. The cleaner and more accurate your records are, the easier tax time will be for you.
Don’t forget about “hidden” expenses such as mileage and depreciation if applicable. Apps such as TripLog and MileIQ can help make tracking business mileage easier.
Keeping receipts for your expenses is important too. Using a bag or box can work, but remember that certain types of receipts have ink that fades over time. Making a copy on your printer–or scanning and sending expense receipts to a cloud program–is a better option.
4. Talk With Your Accountant
Are you using an accountant to help manage the financial end of your business? If not, consider doing so. Proper accounting practices are instrumental in saving your business time and money. Your accountant can help you by giving advice and instruction, reviewing your current services and making adjustments where necessary.
Having an accountant who knows the tax laws and can help you organize your business will only accelerate the proficiency of your business. If you already have an accountant, talk with him or her right away.
Ensure you’ve got the right practices and the right services in order to maximize efficiency in your business. If you don’t have an accountant, consider hiring an accountant who excels in knowledge, proficiency and great customer service.
Related: Why Accounting Is Important To Your Small Business
5. Back Your Data Up
One set of records is never enough when it comes to small business management. It doesn’t matter whether you use computer programs, cloud-based programs or good old-fashioned pen and paper.
A duplicate system where you can backup your data and have a second record of income and expenses is necessary. Things happen. Computers crash. Cloud-based programs fail. And pen and paper systems get destroyed.
Choose a backup form of record-keeping for all aspects of your business. You can never be too safe when it comes to data management.
6. Set Your Goals For The Coming Year
As you organize your records for the current year, take some time to set business goals for the year to come. What would you like to accomplish in the coming year as far as your business goes? Would you like to:
- Increase your sales
- Expand your business to neighboring areas
- Delegate tasks from your plate to an employee’s or consultant’s plate
- Expand product or service offerings
- Downsize your business
- Add some low-cost benefits for your employees, here are some ideas.
- Get prepared to sell your business
Depending on your situation, your business goals might vary widely. Take an afternoon to really focus on what your business goals are for the coming year. Then set aside time to create an action plan for achieving those business goals.
Using a S.M.A.R.T. goal system will help you create an action plan and get further in accomplishing the goals you set.
Tax Moves for Businesses That Might Need Extra Attention
We’ve talked about year-end moves that affect almost all businesses. Next, we’ll share some industry-specific tax moves. These tax moves might not apply to all small businesses, however, they may be vital to yours. See if any of these other year-end tax moves are necessary for your business.
7. Have Inventory Counted On January 1
If you keep inventory on hand for your business, it’s important to have it counted on January 1. You can count inventory the last few days of December if you’re certain you won’t be selling anything.
However, that January 1 inventory date count is important. It helps ensure you’re starting out with the right numbers for the new year’s accounting records.
8. Review And Reconcile Accounts Payable And Accounts Receivable Reports
Unless you run a smaller, cash-based business, you’ll likely have Accounts Payable (bills you owe) and Accounts Receivable (unpaid invoices) records. Review them one last time before year-end and make sure all numbers are accurate.
Assess and refine the list of who owes you money and who you may owe money to. Clear up any outstanding bills due or invoices owed by the end of the year if possible. The cleaner your AP and AR records are, the smoother tax time will be.
9. Determine Any End-of-the-Year Monetary Tax Moves
Now is the time to determine if you need to make any moves to reduce your taxable income. Can you transfer money into a SEP-IRA? Give year-end bonuses to employees?
Are there business purchases you can or need to make before year-end? Does your business need a new vehicle? Are there office components you need to upgrade or replace?
If so, make these purchases now so that you can reduce your taxable income if need be. If you’re concerned about the right time to make these types of monetary moves, consult your accountant for advice.
He or she can assess your needs, compare them to your income and determine the right year to make purchases.
Related: The Tax Benefits Of Hiring Your Child In Your Business
10. Assess Payroll Records And Update If Necessary
If your business has employees, now is the time to assess and update payroll records. Ensure you’ve got all payroll payments recorded properly. Adjust your records to reflect any new employees that were hired during the year. Additionally, record any details about employees who left your business during the year.
Also, ensure you’ve got proper records of all deductions paid. You’ll want proper records for state and federal taxes, FICA, retirement accounts and the like.
Finally, assess your payroll budget for the coming year. Make sure you can afford to keep current employees on and decide if you need to hire additional help. In addition, search your budget for funds available for next year’s pay increases. Ensure pay increase percentages are in line with your budget’s bottom line.
If not, you may need to reduce payroll percentage increases or find somewhere else to cut your budget.
11. Verify Vendor Information And Employee Information
The last step on our list involves verifying contact information for all vendors and employees. Make phone calls or send emails for proper verification if you need to.
This will make end-of-year documents such as sending out W-2s much easier. And it will help you be more organized as you come into the new year.
Assessing and organizing your small business vendor and employee records near year-end is a smart way to ensure your transition into the new year is a good one.
It almost always works better to prepare than it does to repair. As they say, an ounce of prevention is worth a pound of cure. Make the necessary year-end checklist moves for your business now.
Doing so will help your business run smoothly, efficiently, and most cost-effectively. And don’t forget to talk to your accountant for specific advice. They can keep you updated on upcoming tax changes, smart tax moves, and more.