Are you tax ready? The must-do list:
Updated: Oct 28, 2020
BrightBooks has some suggestions to help you prepare for year-end and ease into the new year knowing you are organized and ready to save on taxes!
Create a checklist to help make sure all of your transactions are up-to-date and recorded in your accounting system including:
Income and Expenses:
Vendor invoices: All invoices need to be entered at year-end, and any invoices you receive in the beginning of January that are dated in December should be recorded as well.
Customer billing: All invoices for products sold or services provided as of year-end should be billed in the system. Customer deposits held should also be tallied for year-end
Prepaid expenses: Any prepaid expenses, such as prepaid insurance for the following year, should be recorded as an asset.
Depreciation: New asset purchases and depreciation for the current year should be recorded and up-to-date.
Inventory: Whether you take a physical inventory at year-end, or maintain a perpetual inventory system, ensure now that your inventory records are accurate and any adjustments for damaged, obsolete, and lost or stolen inventory are recorded.
New tax law: discuss the advantages of year end decisions based on new tax law to benefit your business
Payroll and Year End Bonus:
Ensure W-2 and W-4 forms are current. If you purchase hard copies of your W-2 forms from a third-party supplier, confirm that you have updated forms. If employees have had a life change over the course of the year (such as getting married or divorced, or having a child), remind them to prepare a new W-4 for 2019.
Confirm payroll bank reconciliations. Identify any payroll checks that may remain outstanding
Make a list of special wage payments. Special wages like S Corporation officer benefits, employee parking, athletic club memberships, employee stock options, disability pay (in certain states), relocation assistance, may require you as the employer to provide additional information based on tax reporting requirements.
Confirm whether employees will receive a year-end bonus and how you'll issue them. If employees will receive additional compensation as a holiday bonus, it is subject to applicable payroll taxes and should be reported on a W-2. If you'll pay employees a flat sum for a bonus, you can gross-up the amount when you input it into payroll so employees receive the funds less applicable taxes.
Organize all supporting documentation so that you can gain quick access as you prepare your taxes or respond to requests from your tax preparer. Often requested support includes:
Mileage logs and vehicle odometer readings
Credit card statements
Employee records and tax filings
Estimated tax payments
As your business grows and becomes more complex, you may want to re-evaluate your recordkeeping system and replace manual processes with automated tools.
To help with bookkeeping in advance of tax season, consider using online accounting software. This helps you stay on top of data entry because you can access the system from any location where internet access is available. Online software also tracks applicable sales taxes. At year-end, you can use accounting software to generate financial statements and other reports that tax professionals will need to prepare business returns.
Preparing for taxes can be overwhelming. Advanced planning, research, and the use of an online accounting system help increase both the accuracy of small business tax returns and the efficiency of the filing process.
Contact BrightBooks USA to help you ease the burden of organizing and have your books and records tax ready!