Preparing for year-end in the small business world is never fun. It’s a daunting task that can loom over you for a quarter and a half if you let it. At To The Rescue Bookkeeping, we recommend not doing that! J
Here are some tips for you small business owners out there, so you can stay on top of things during year end/tax time.
Keep Excellent Financial Records from the Beginning
The first thing that any small business owner should do is keep EXCELLENT records. This requires organization and an understanding of business expenses versus personal expenses. Keeping excellent records from the beginning of opening your business, will help eliminate a lot of stress in the future.
This shouldn’t require much of an explanation, but if your computer is used more for shopping online, rather than business purposes, you should file that in your personal expense column, not business.
Maintain a separate checking account and credit card for your business, and do not use your business checkbook as your personal checkbook.
Cash Flow > Outstanding Invoices
Executing prompt customer invoicing is key! Ask your clients for the money you’re owed so that you can get paid. When your business is surviving from one paid invoice to the next paid invoice, tracking your customer payments will help big time in making your small business successful.
Keep up to date accounts receivable reports. The older the invoice, the harder to collect! Cash flow is the core of your business, and without this type of reporting, you can’t keep track of aging invoices and know which clients to follow-up with.
Give the People What They Need
Employers are required to prepare and distribute year-end tax forms (W-2s or 1099s) to their employees and contractors by January 31 of each year. Know this and act upon it accordingly – you still have time.
Prep your W-9s in Advance
You should have a W-9 on file for every third-party contractor you pay, but collecting W-9s and other forms can be a huge headache for small businesses since most don’t have enough resources and departments to dedicate to this task. Creating a process for collecting W-9s will make tax season much less stressful.
One process you can implement for collecting W-9s, is printing out a stock of blank forms and mailing them out with the first contract you sign with a new contractor. By adding this extra step, you can proactively collect the information you need.
If you already have contractors working for you and you don’t have their W-9 on file, figure out who they are and get their W-9 ASAP.
Know Thy Financial Logistics
If you’re a small business, you may be only one person, or employ several, but either way, be sure your employee classification is very clear. Do you have full time employees or independent contractors? If your business is found to have misclassified employees as independent contractors, there are some pretty harsh penalties, like interest and withholding taxes.
Also, it’s a good idea for every small business owner to gain an understanding of the mechanics of payroll (gross pay, federal, state and local tax withholdings and payroll taxes including social security, Medicare, federal and state unemployment taxes). This understanding should include the tax deposit requirements of each of the aforementioned taxes, including required electronic payment rules.
Call Us for Assistance!
Any small business owner unsure of how to proceed, should solicit the services of a professional.
With guidance and advice from tax preparation/bookkeeping professionals, you will not only learn about strict tax compliance requirements, but gain the value of having accurate and complete records. These records will generate reliable financial data off which you’ll be able to forecast things like growth and budgets. And keep you off of the IRS’s “naughty list”.
Best wishes with conquering your small business year-end tax prep! And a Merry Christmas and Happy New Year from your friends at To The Rescue Bookkeeping!!