An End of Year Checklist for Small Business Owners

As the year draws to a close, many small business owners feel overwhelmed by tax-related matters. If these are not handled properly, it could result in unwanted attention from the IRS - something nobody has time for!

Thankfully, at Accountingprose we understand that an ounce of preparation is worth a ton of cure and can help take away any stress associated with taxes. Our core superpowers lie in organized preparation and planning so you don't have anything to worry about!

Using the handy-dandy checklist below will ensure the smoothest possible year-end filing.

FINANCIAL STATEMENTS TO COLLECT

Before starting, it’s important to keep a digital or paper copy (or both) of the following documents on hand. They’ll come in handy should there be any uncertainty as to when or why a transaction appeared in the Xero file.

• Bank Statements  
• Credit Card Statements
• Merchant Account Statements
• Interest Statements
• Payroll Reports
  • 940s
  • 941s
  • Payroll Journal showing gross wages, taxes, and benefits
  • W2s
  • 1099-MISCs and 1099-NECs
• Previous Year’s Tax Return

Income Statement To Review

Accurately capturing all income and expenses on an Income Statement (or Profit & Loss) is key when filing taxes. Ultimately, this decides the final number of taxes you owe or deductions available for your business in 2017. Ensuring that everything adds up correctly to get a precise Net Income/Loss will save money at tax time and keep Uncle Sam happy!

Remember to review the following:

Are there any items in Suspense/Ask My Accountant?

These unknown transactions need to be sorted and placed in the correct account. This is essential for having accurate financial figures at the end of the year. Make sure everything is cleared out so you can have a complete picture of your business's finances!

Are payroll totals accurate?

It's essential that the Internal Revenue Service (IRS) knows precisely how much money everyone makes. That's why it is necessary to review all 940/941 payments and double-check if there are any changes or adjustments needed, as well as make sure they have been accurately logged in Xero. There must be a full match between what was reported on the W-2s at the end of each year and everything related to 940/941 throughout those twelve months. To avoid any potential issues in the future, address mistakes on your payroll filings promptly with your payroll provider. Take action now to save yourself from further trouble later.

Are all transactions properly categorized?

To ensure that deductions are presented accurately, and to prevent any red flags from arising, it's wise to check all accounts thoroughly for transactions categorized incorrectly; even though the items in suspense may already have been cleared. 

Were any business expenses made on personal cards?

Let's face it, these expenses can often go unnoticed. To avoid such an inconvenience, make sure to record them as soon as you come across them throughout the year; that way they are fresh in your memory. Additionally, double-checking your personal accounts will bring assurance that a careless mistake won't be made and invite unnecessary attention. If any transactions were neglected or forgotten about entering them into Xero with the original date on the statement is what needs to be done in order for everything to even out again! 

Are there any home office expenses?

The home office deduction is a tax break that allows small business owners to deduct certain expenses related to their home office. This includes rent or mortgage interest, utilities, repairs, insurance, and security. It can be a great way to save money when filing taxes as it provides a substantial deduction for those who work from home.

To take advantage of this deduction, you must use your home office regularly and exclusively for business. This means that it cannot be used as a guest room or for any other personal purpose. Additionally, it must be the principal place of business so if you work outside of the home the majority of the time, you won’t qualify for the deduction.

The yearly limit on home office expenses is calculated on a per-square-foot basis. So, make sure you measure the square footage of your office before filing to make sure you don’t miss out on any possible deductions. With careful planning and record keeping you can maximize your tax savings with the home office deduction.

Balance Sheet Items To Review

To get a comprehensive overview of your business at the conclusion of the year, turn to the Balance Sheet. It clearly displays what you own and is owed - two vital aspects that aren't always taken into account when filing taxes but nevertheless deserve accuracy as we move forward into the new year.

Although most entries in this document can be automated, it's still essential to confirm each balance manually for any discrepancies or error-prone information so that all figures presented on the sheet may be updated and modified accordingly.

Assets

Assets are items that you own, including bank accounts, cars, equipment, and inventory. If you have any products in stock, always assess the quantity through a physical count - even if using perpetual inventory which monitors what's being transferred into or out of your business. Mistakes can occur so it is vital to perform this yearly review; double-checking with an annual tally will help detect these errors before they become too severe! 

Liabilities

When you owe something, that is classified as a liability. Thus it's essential to double-check your loan and credit balances by comparing them with the data on your accounting software. This way, you can be certain all requisite information is accurate. Further, it's wise to check any incoming bills that may have gone unnoticed or forgotten about throughout the year.

Depreciation

Depreciation is a non-cash expense related to the tangible asset of a business. It is the process of allocating the cost of an asset over its useful life, and it is used to match revenue with expenses over time. Depreciation provides a way for businesses to spread out the cost associated with purchasing an asset over several years, rather than taking the entire cost as an expense in a single year.

Typically your accountant will provide your depreciation schedules after they have filed your tax return, which can then be updated within Xero. Remember, for any incoming assets, it's important to keep track of their purchasing date and cost so that your CPA may calculate their depreciated value correctly each year.

Payroll (and other) accruals:

By adding in these liabilities, which are owed to employees or vendors for work done last year but yet unpaid, all prior year expenses stay correctly allocated. This way they don't get shifted into the current year when eventually paid out.

Forms to File

Don't forget to stay up-to-date on your filing requirements. Depending on who you have paid throughout the year, there might be forms that need to be filed in addition to your tax return such as 1099s for any independent contractors or W2s for employees 

Do you have W9s on file for all contractors?

Ready to submit 1099 forms? Gather all essential information for relevant vendors and get them ready. The vendor and the IRS must receive copies of their 1099 form by January 31st in order to avoid any late filing fees. Collecting W9s from your vendors and contractors early will help you to easily fill out their 1099, ensuring that everything is filed accurately as well as on time!

Do any adjustments need to be made to the 940/941s filed during the year?

When filing taxes, employers must check the accuracy of the 940 and 941 reports filed throughout the year. This is because any discrepancies can lead to potential penalties and an increase in tax liability. It is important to review any changes made over the year that could affect the wages, such as bonuses, overtime pay, or other employee compensation.

Ready to file those W-2s?

Once all payroll totals have been confirmed and all employee information has been gathered (such as the wage and withholding amounts reported in the W-4 when each person was hired), it's then time to issue each employee their Form W-2. This form is crucial for employees to receive, as it forms the basis for filing their individual income tax returns. Make sure to issue these forms by no later than January 31st in order to avoid any penalties or late filing fees.

In addition, it's also important to remember that all of the information on a W-2 must match up with what's reported on an employee's federal and state tax returns for the year. If any discrepancies are found, they must be corrected and reported immediately. In order to avoid any errors, it's best to review all Form W-2s before submitting them to both the IRS and each employee.

Check the Budget in Xero

If you don't already have a budget set up in Xero, commit to making it happen this year! When all the numbers are tallied for the end of the year, reviewing your budget will guarantee that everything is running smoothly. And if not? You'll be in an optimal position to adjust and move forward. Moreover, setting annual goals and monitoring what's happening each month can be much easier with foresight from your organized budgetary data.

Don't forget to: 

• Review the year by comparing actual totals to the budget.
• Look to see how your business performed year over year.
• Think ahead to what could change or improve in the upcoming year.

Things to do at the beginning of the new year, aside from filing taxes

• Check whether any state unemployment rates have changed. 
  • You should have gotten a letter in the mail or notification to view a change within the state's online portal. 
• Make sure that your compensation is in line with current minimum wage laws. 
• Review your company handbook and make any changes to align with any changes in state law.
• Set some goals! 

  • What do you want to do better?

  • What do you want to do more of?

  • What do you want to quit doing? 

It is important to remember that the end of the year can be a busy time. By proactively planning ahead and ensuring all necessary documents are filed on time, you will avoid any potential penalties or late filing fees. Additionally, staying organized by creating an annual budget in Xero and monitoring it throughout the year will help keep your business running smoothly as well as position yourself for success in the upcoming year. Lastly, don’t forget to review how your business performed compared to previous years so you can continuously improve and grow! With these tips in mind, you should have no problem getting ready for tax season this year.

If you are ready to make light work of your end-of-year – give us a shout! We'd love to help our small business clients spend less time on the boring stuff, and more time doing what they love.