1. Gather Records
Make sure your accounting books and records are accurate and up-to-date, and check that records and documentation that help support your tax return are clearly organized.
These should include old tax forms, expense reports, bank statements and other bookkeeping basics.
2. Know Your Deductions
The end of the year is a final chance to increase expenses so that business tax deductions can be claimed. You can stock up on office equipment, make charitable contributions, pay bills early and find other small business deductions.
A tax professional can help a small business find all of the tax deductions it deserves, such as capital expenses.
3. Defer Income
If your small business’s cash flow allows it, you can defer income earned depending on your business structure. You can reduce your overall taxable earnings for the current tax year by deferring any payments you receive for services or products rendered until the first week of January. This will defer your tax owed on this income until April of two years from now.
If you are a sole proprietor, LLC, S Corporation, or in a legal partnership, income deferral can make sense, especially if you don’t foresee any significant changes to your income tax rates in the new year.
However, if you have any doubts about the solvency or future of your clients, you should collect those payments soon.
4. Employer Obligations
If you hired employees for the first time or used independent contractors in the past year, it can help with your year-end tax prep to familiarize yourself with tax reporting obligations and deadlines that will hit early in the new year.
For example, an employer must provide employees with W-2 forms by Jan. 31, or the next business day if Jan. 31 falls on a weekend. The W-2 forms should also be filed with the Social Security Administration and show wages paid and taxes withheld for the year. This must be accompanied by a W-3 form that shows the total of all W-2s by the end of February.
If you paid an independent contractor or other business who isn’t your employee at least $600 during the year, you should have been maintaining W-9 forms, contractor’s business licenses and insurance certification during the year.
The end of January is the deadline for sending each contractor a completed copy of Form 1099-MISC to report payments made to them.
5. Retirement Plan
The end of the year is a good time to set up or contribute to a retirement plan to reduce your annual taxable income.
Check your plan’s allowable contribution limit for the year and talk to your accountant about what makes sense for your small business.
Preparing for year-end taxes can be a lot of work for small businesses. The IRS offers a number of online calendar reminders to help with remembering when everything is due.
*This article is for informative purposes only and should not be construed as tax advice. Consult your tax advisor regarding requirements for your particular business.
