End of the year accounting can be quite hectic. There are a lot of different balls to juggle and dropping any of them could result in heavy fines and penalties. These are some of the core things to keep in mind during your end of year accounting.
==> 1099s and W2s
Contractors and employees need to fill out a 1099 form or a W2 form. Any contractor who you’ve paid more than $600 in the fiscal year needs to have a 1099.
==> Dividend or Owners Draw
It’s common for businesses to pay out non-salary earnings to owners at the end of the year. There are different ways to do this, including through paying dividends or owner’s draw.
The exact method of payment depends on your corporate entity structure. There are also differences in how proceeds are taxed, depending on how you’re paying the owners.
==> Write Off Bad Debt
If you have bad debt, the end of the year is a good time to write them off. It won’t cover the cost of your debt, but you’ll at least save some money on your taxes.
==> Depreciate Fixed Assets
Take inventory of the fixed assets you have in your business. Then talk to your accountant about depreciating your assets. Different kinds of assets are depreciated at different rates. Having an accurate count of your assets can help you maximize your depreciation deductions.
==> Update Your Retained Earnings
Your retained earnings as well as your Earnings Before Interest, Taxes, Depreciation and Amortization should be updated. These numbers are essential for both the IRS and for shareholders.
==> Record Accounts Receivables and Payables
If you have accounts receivables and payables tracked in different accounting systems, now is the time to reconcile those systems. You need to have all your receivables and payables in one place in order to have an honest outlook on the cashflow position of your company.
==> Balance Your Inventory
The amount of capital you have tied up in inventory plays a significant role in your company’s accounting and in asset values. If you haven’t done an inventory check lately, you’ll want to do a comprehensive check for your end of year accounting.
==> File All the Necessary Tax Paperwork
The IRS requires different kinds of paperwork for different corporate entities. LLCs and general partnerships require less paperwork, while C-corps and S-corps require more paperwork – especially if you have outside investors and shareholders.
Generally you’ll be expected to file at least a P&L statement, a cashflow statement, a balance sheet, a general ledger and an inventory valuation.
End of year tax season can be a little hectic. Working with a knowledgeable and experienced tax accountant can really help lighten the burden. Having a trustworthy bookkeeper throughout the year can also be a big help.