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As another year ends, it’s good to take time to assess the things you’ve done over the previous 12 months, while also preparing for the future. When you’re a company owner or comptroller, the fourth quarter takes on additional importance with regards to small business tax planning activities. No matter if this is your first year handling your organization’s filing or you’re a seasoned veteran, early preparation can streamline the process and save money for your company. Here are a few steps you should take before the new year begins.
Gather Your Documents
Before you start working on your year-end tax preparation, you should first gather the appropriate information. While no two businesses are identical, there are some pieces of paperwork that any company should have ready when working on taxes:
- Balance sheet
- Income statement
- Payroll information
- Bank and credit card statements
- Asset purchase documents
- Depreciation schedules
- Partnership agreements
- Last year’s tax return
Learn Your Deadlines
For the average U.S. citizen, April 15 is the day when tax returns are due, but things are different when it comes to small businesses. The government has a set of deadlines that must be met, and they differ based on the structure of your organization. If you’re unsure about your company’s legal obligations, the IRS website has a complete list of responsibilities broken down by business type.
Make Bonus Decisions
Does your company have a structure where top performers get rewards in the form of a year-end bonus? This is the time when you need to decide how much to reward your best employees, but don’t forget to withhold the appropriate taxes. Even though these payments aren’t part of a worker’s regular salary, they’re still subject to income tax, FICA, and FUTA.
Evaluate Your Current Tax Strategies
The end of the year is a good time to take a look at the way your company operates to see if there’s the potential for improvement in any area. Since laws change every year, you can’t keep the same strategies and expect to maximize your efficiency. By examining your current practices and comparing them to any upcoming changes, you’ll do your part to get the most when it comes to tax credits/deductions.
Reconcile Accounts
Did your company use any contractors or vendors during the year? If you have any outstanding balances with either of these parties, the fourth quarter is your time to reconcile those debts. Not only is it considerate for those business owners who are trying to do their taxes, but it’s also important to make those payments so they count towards your expenses assuming that you are a cash basis taxpayer. By putting these responsibilities off, you may be eliminating a potential deduction for the upcoming year’s filing.
Estimate Your Quarterly Tax Payment
If your business submits estimated taxes quarterly, the end of the year is when you should start making those calculations. While your payment won’t be due until January 15, you don’t want to put this off until the last minute. Take a look at your income and expenses, estimate the amount you think you’ll owe, and set it aside in its own account.
Account for Personal Expenses
It’s not uncommon for a small business owner to accidentally make a personal purchase with a company card, but it’s important to account for those expenses when preparing your taxes. If you aren’t careful about doing this, you may mistakenly deduct a personal expense, which could result in a penalty from the IRS. When you reconcile these discrepancies, the ideal solution is to pay the amount back from your own account, but your accountant could offer some alternative strategies.
Start Working on an Extension
Sometimes it’s not always possible to get everything in on time, which is why the IRS allows you to file an extension. While you are entitled to a few additional weeks to get your paperwork in order, you’re still responsible for paying any anticipated shortfalls. Don’t put this off until the last minute because the penalties for late filing are severe.
Meet With your CPA
Navigating the tax filing process can be difficult, but your accountant can serve as a guide. Not only can he or she take a look at your information and help you estimate a quarterly payment, but you can also use a year-end meeting to devise a strategy that maximizes your deductions for the coming year. Likewise, you should also get together with your bookkeeper to make sure all ledgers are current and accurate. It is very possible that making some simple changes to your financial picture could end up saving you thousands of dollars in taxes, but such changes would need to be made before the end of the year. Don’t miss out on any available tax-saving strategies; it could mean paying the IRS more in taxes than you are legally obligated to pay!
Start Preparing Today
These are just a few of the steps you can take to streamline your tax preparation process, but a professional accounting firm can help make things even easier. At Pine & Company, our team has more than 200 years of combined experience working with business owners, and we’re ready to help your company too. To schedule an appointment for a consultation, contact us online or call our office today at 817-581-3223.
