For many business owners, the year escapes them and causes their bookkeeping to get behind. Here are 13 year-end business tips to get your books in shape and make sure you can take advantage of all your deductions and be ready for your CPA to get your taxes done.
The following items are many of the things you should be focused on doing in December or on the last business day of your year. Failure to do so could result in disallowance of deductions, or spending money to correct mistakes after year-end. Call us if you have questions about any of these and we’ll be glad to work through them with you. Also see this post with additional year-end business tips and tasks you can do now to get ready for tax time.
Reimburse for home office expenses
If you are a corporation and utilize a home office for administrative activities, be sure to reimburse yourself for the cost of that home office before December 31 so you can take the deduction on this year’s taxes. There is a special calculation for this, so contact us for additional information on how to do this. Remember that to be deductible, the home office does not have to be an entire room, but it must be used regularly (on a continuous, ongoing or recurring basis) and exclusively (there can be no personal use).
Shareholder health insurance added to W-2
If you are an S-corporation and your corporation is paying for your health insurance policy for you and/or your family, this amount must be included on your W-2. You should coordinate with the party that is preparing your W-2s this year (us, ADP, or another payroll provider) before running your final payroll of 2017. Health insurance can include dental insurance, Medicare premiums and even long-term care premiums up to certain IRS limits. If the S-corporation has not paid the premiums directly, the company should reimburse the shareholder for premiums paid prior to the end of the year.
HSA Contributions added to W-2
If you made HSA contributions for employees, make sure to report the contribution in Box 12 of Form W-2 for informational purposes. If contributions were made for shareholders owning more than 2 Percent of an S-Corporation or their family members, the amount must be included in Box 1 of the Form W-2 as wages.
Plan for 2018 Health Reimbursement Accounts
Make sure you have provided your employees with the proper documentation if you plan to take advantage of this arrangement in 2018. Make sure you talk with us to make sure all the rules have been properly followed.
Calculate personal use of vehicles and add to W-2
If your business owns a vehicle that you use for personal reasons (such as commuting or other personal reasons), the value of the personal portion of that benefit must be included on your W-2. Contact us for help with the calculation.
Take a year-end odometer reading for tracking total miles driven and make sure your mileage log is complete.
If your business owns a vehicle or you use a personal vehicle for business purposes, one of the items the IRS requires is the total miles driven for each vehicle (in addition to the number of business miles). We recommend taking a photo of your odometer on December 31 each year to help you calculate the number of miles you drove for the year. Additionally, make sure you have documentation for any business miles driven during the year such as mileage logs or calendars. As part of your log, you should be including the date, the starting point, the destination, and the business purpose of the trip.
Take a year-end inventory
If your business maintains an inventory of goods held for sale, you should take a physical inventory on the last business day of the year. This amount is reported to the IRS each year and represents the cost of the inventory still on hand at the end of the year. If a record of usage of materials and supplies is kept, a physical inventory of them should also be done on the last business day of the year.
1099 tracking and reporting
As a general rule, anybody that you pay $600 or more in a calendar year for services, fees or rent that doesn’t have an Inc. or Corp at the end of its business name should be issued a 1099. Pay close attention to payments made to LLCs. An LLC that is a single-member LLC or an LLC that files a tax return as a partnership should be issued a 1099 if they meet the $600 threshold. Payments to attorneys or physicians or other suppliers or providers of health care services should be issued a 1099 even if they are organized as a corporation if they are paid $600 or more. Now is a good time to make sure you have current addresses and social security numbers for those vendors. You will also need to make sure your books and records are caught up so you can calculate these amounts accurately in January.
Documentation and Proper Separation of Meals and Entertainment
Meals can fall into either 100% deductible or 50% deductible categories. They should be separated in your record-keeping so that we can properly deduct them. 100% deductible meals include social activities for all employees including picnics, holiday parties, occasional meals, and promotional activities provided to members of the general public. 50% deductible meals and entertainment include most other meals and entertainment. To ensure the deductibility of meals and entertainment, make sure to document the date, the amount including taxes and tip, the place, the business purpose, name of business associates, and the relationship of the individuals such as customer, client, potential customer or employee.
If you are seeking last-minute deductions for your business, purchasing equipment, and putting this equipment in service, before January 1st is one strategy to create expenses and reduce taxable income.
If you are a cash-basis business and wish to create last-minute deductions, you should pay any vendors with outstanding bills before January 1. The checks should be mailed or charged to a business credit card by December 31.
Pay related parties
If you are an accrual-based business, and you have unpaid bills to related parties (such as yourself), you will need to pay these bills before year-end in order for the deduction to be allowable in 2017.
Reconcile Bank and Credit Card Accounts
If you do your own bookkeeping in QuickBooks or any other program, be sure your bank and credit card accounts are balanced through November. This will make the process easier in January when you reconcile these accounts for December.
Following these 10 year-end business tips will make your year-end smoother and make your CPA happy as well!