Small businesses should start tax prep early
Mention the word accounting, and many business owners flinch.
A new year is an opportunity to showcase any shiny new products or time-saving services offered to customers. That's the fun stuff. However, it can't be all play. The hard stuff, such as tax preparation and accounting — needs to come first.
Accounting is part of the business many owners don't like and have a harder time understanding. But Better Business Bureau Northwest + Pacific knows that accounting is a vital part of a company, and a good system that is understandable and, most importantly, used regularly, is imperative.
If your organization's financial accounting period ends Dec. 31, you need to begin preparing information to send to a CPA or tax preparer as soon as possible after that date. December bank and credit card statements start arriving in January, allowing the completion of the 2019 books. Once the books are finalized, gather the information in an organized manner and submit them to your tax preparer.
What needs to be included? Copies of December bank statements and end-of-year credit card statements are usually required, in addition to your profit & loss statement and balance sheet. While banks issue statements at the end of the month, credit card statements vary depending on the closing date. So, include the last statement showing transactions from Dec. 31, 2019.
Now, for the in-house process. Once the 2019 financial information is in the hands of the CPA, put your physical 2019 receipts and statements into easy-access storage. You might need this information for your CPA or any questions from vendors, so you don't have to dig through boxes to find something later. More importantly, do not close the 2019 books in your software program until your CPA has completed your return.
This is also a prudent time to review your current software program. Accounting software programs make the life of non-accounting people easier and compile data quicker. Also, check on the program's security. Protecting information in the system is essential for the company and its clients. A failure in safeguarding sensitive data erodes customers' trust, so security — as usual — needs to be top of mind.
Make sure to set up 2020 files for receipts and statements by creating a list of upcoming deadlines that includes W-2s, 1099s, due dates, quarterly payroll reports, estimated tax payments and tax return deadlines. Knowing when everything is due allows you to stay ahead of the filings.
Pro-tip: collect new W-9 forms from your vendors and suppliers. The W-9 form is required by the IRS for any person or company you pay more than $600 to in a year.
As a courtesy, remind your employees to review their W-4 withholdings. If they have a new family member, purchased a home, or changes in their situation, it will impact their taxes.
Finally, now is the time to plan for any unforeseen events which could impact the business during the year. Whether it is a natural disaster or possibly even a cyber-attack, having safety-net funds will assist in the survival of the company. The Federal Emergency Management Agency notes, "90% of businesses that don't reopen with five days of a disaster, fail". Having that emergency fund mitigates the financial burden on business.
BBB NW+P recommends booking an appointment with your CPA or business advisor to review your profit & loss statement, balance sheet and cash flow statements sooner rather than later. By sitting down with your CPA more than once a year, you're able to better understand IRS codes, which allows a company to reduce its tax liability. For example, did you know that buying more than 40% of your depreciable property in the 4th quarter of the year triggers different rules for depreciation? Tax laws and regulations are not common knowledge for the average business owner, and that's why expert-help is critical to ensure you're not paying more than you have to.
At BBB NW+P, we can dole out advice for small business owners in digestible chunks, but when it comes to the gritty details, it's necessary to have an open line of communication with your CPA. And of course, we advise you to organize, prioritize and plan ahead.
Danielle Kane is the Portland Marketplace Manager for Better Business Bureau Northwest + Pacific. She can be reached at: 503-833-2301
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