Well, you made it! Another year checked off!
How many year-end and get-ready-for-tax-season checkoffs have you completed or thought about?
Are files changed and updated? Have you gathered the documents needed for taxes while waiting for 1099s, etc.?
Many first-year entrepreneurs and small existing entrepreneurs don’t know or think about routine month-end and particularly year-end bookkeeping and tax-related activities.
Whatever you do, try to think logically. Handle all financial documents as though the business might face a federal or state tax audit.
Keep things clean, simple, organized. If someone else has to find something or follow your path, how will they think? Where will they look?
For Dec. 31 year-ends, move the year just-ended Accounts Payable Paid and Accounts Receivable Paid files farther back in the drawer, or better yet, to another drawer, cabinet or room.
Start a new file for Accounts Payable Paid and Accounts Receivable Paid each year. If the legal entity ends the tax year at a different time, change files at that time. Some popular bookkeeping software allows the operator to "lock" last year to avoid posting current entries in the previous year.
Now is also the time to label other folders for this new year, such as: Taxes - Federal Employment, Taxes - Federal Income, Taxes - State Employment, Taxes - State Income, Taxes - Sales Tax (write the year after each description and possibly form numbers, like 940, 941, 1120, 1120S). Use “Taxes” as the first word, then alphabetize by the following words for quicker access when stowing and pulling.
By the third or fourth day of each month, entrepreneurs should review a recap of the previous month and all accumulated months so far that year.
That way, during the first week of January, owners and managers should know everything input for the previous year is correct, whether viewing a paper-and-pencil recap on columnar paper or a computer spreadsheet of the checkbook (plus mileage), or by clicking “reports” on a software program.
Be sure there is a paper or electronic trail proving why each deposit and expenditure was made. If lacking, correct that soon.
Know or learn whether your company must send 1099-Miscellanous forms before January 31.
If you bought or traded an auto driven for business, toss information in the tax prep folder. Details will be needed for Schedule C, 1120 or 1120S. If one or an avalanche of 1099s arrive, make sure not to count that income twice - if already in sales totals, reverse out before entering the 1099s.
Call your tax preparer now for an early review to discover any inconsistencies far in advance of deadlines. Messy records lead to mistakes or delays.
And finally, beware of extensions, because taxes are due on or before the original filing deadline.
Charlene Maurer Finerty, owner of Plans and Profits, LLC, edits, teaches and writes custom business plans. See PlansAndProfits.com. She also offers a Write-Your-Own-Business Plan class on DVD at BusinessPlanWritingClass.com. Email firstname.lastname@example.org anytime or call 343-1515 from 9 a.m.-7 p.m. Her column appears alternating Mondays.