Year-end comes quickly for many businesses. With holidays and travel, it is imperative to be organized and ready for year-end, so you can get your CPA the information needed early in the new year.
The following is a list of things that should be done in November or December to help you get ready. Download this document as a PDF here.
These are items that MUST get done before year-end:
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 must coordinate with the party that is preparing your W-2s this year (us, Gusto, ADP, or another payroll provider) before running your final payroll of the year. 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.
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).
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. If you don’t do this, 100% of your vehicle cost may be considered personal and nondeductible. Note that this applies only if your business owns the vehicle and has been recorded as an asset or is being leased through the business.
Update employee mailing addresses
Be sure you have updated mailing addresses for all employees so that W-2s don’t get lost in the mail.
Inventory balances are accurate
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 you have an effective way of maintaining perpetual inventory balances and costs, you could do the inventory in November or December to update any balances that may have gone astray.
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.
These are items that you should look after before year-end to make tax season less stressful and more productive:
Bank and credit card accounts are reconciled
Make sure your bank accounts and credit card accounts are reconciled through November. The reconciliation process is a formal process in QuickBooks and all other accounting software and generates a reconciliation report. This helps you ensure there are no missing deposits or expenses, and that any uncleared checks or deposits have been investigated and possibly removed. By getting these caught up through November, you have only one month to reconcile when the new year arrives and gives you more time to resolve issues.
Accounts receivable is accurate
Review your Accounts Receivable Aging. Are all invoices legitimately outstanding from your customers? Are there any negative amounts indicating overpayments or payments applied without an invoice?
Accounts payable is accurate
Review your Accounts Payable Listing that shows bills you owe to vendors. Are all invoices legitimately owed to your vendors? Are there any negative amounts indicating overpayments or payments applied without an invoice?
General review of your financial statements
Review your income statement and balance sheet for the 11 months ending November 30. Make sure there are no unexplainable amounts, that sales and expenses compared to the prior year is reasonable, and that your balance sheet appears to be correct.
Prepare to Issue 1099s to Your Subcontractors
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. These forms must be sent to your contractors by January 31st, so there is not a lot of time to gather this information after year-end.
Separate entertainment expenses from other expenses
Be sure entertainment expenses are recorded in a separate account and not comingled with travel or meals. Entertainment expenses are no longer deductible, and we need to know these amounts to prepare your return.