Between planning events, juggling family obligations, and schools being closed, all while successfully running your business, the holidays can be a stressful time for many business owners. The time is now to plan a strategy and implement a process to help you succeed with year-end compliance and tax return filings. If you feel behind already, you’re not alone, and the good news is that you can call on a team of experienced and reliable professionals to help you. The Outsourced Accounting Services team at FORVIS works with clients year-round and especially at year-end through the start of the new year. Below are our top five tips to help you prepare for a successful year-end:
1. Review Your Bank & Credit Card Reconciliations
If you haven’t been keeping up with reconciliations, now is the time to get caught up! These reconciliations will allow you to feel confident that transactions have been entered for Form 1099 tracking, and that you haven’t over or underestimated your income or loss for the year due to duplicated or missing transactions. Once the reconciliations are complete, review outstanding items for any transactions that have gone stale. Typically, deposits will clear within a few days, so if there are any outstanding items from previous months or years, it’s likely that these were duplicates or entered in error and should be adjusted off the bank register.
Review your outstanding checks for any items that haven’t yet cleared. Most financial institutions won’t cash checks after a certain number of days (90, 120, 180, etc.), so any checks falling outside that date range are likely stale and action should be taken. Start by verifying that the outstanding check or expense wasn’t already entered and the item on the bank reconciliation is a duplicate. If not a duplicate, reach out to the vendor to verify if its records show a balance due. Some vendors will issue a credit against an invoice without notifying the customer and then ignore the payment. If this is the case, the check can be written off with no new payment issued. If the vendor still shows a balance due, the old check should be voided and a new check should be issued. Each state has different laws and regulations on the timing of when an entity needs to submit money to unclaimed property.
For any checks being written off, review your state laws or reach out to your CPA to confirm if the state’s dormancy period has passed. Also, check to see if you’re required to perform due diligence by first making an attempt to locate the vendor via a due diligence letter or email. If you still don’t get a response from the vendor, then you must escheat the property to the proper jurisdiction at that time.
2. 1099 Compliance – Update Your W-9 Database
One of the first tasks of the new year is making sure all 1099s are completed prior to the January 31 due date. This can include tracking down Form W-9s from vendors that might not always be willing to provide their information. One task you can tackle ahead of January is making sure all your W-9s are in order. Review your transaction detail for each vendor to determine whom you’ve paid that will need a 1099 issued to them. The most common 1099s required are 1099-MISCs and 1099-NECs, and these are required for any person or business that within the course of your business you pay at least $600 in:
- Rents
- Prizes and awards
- Other income payments
- Cash paid from a notional principal contract to an individual, partnership, or estate, in general
- Any fishing boat proceeds
- Medical and healthcare payments
- Crop insurance proceeds
- Gross proceeds paid to an attorney
- Section 409A deferrals
- Nonqualified deferred compensation
- Services performed by someone who is not your employee (including parts and materials)
- Payments to an attorney
Furthermore, you’ll need to issue a 1099-MISC for any payments of $10 or more in royalties. Additional guidance and instructions on who does and who does not need to receive a 1099 can be found on the IRS website.
If you don’t already have a W-9 on file, provide one to the vendor to fill out and return to you. You might get some pushback; it’s important to explain that completion of Form W-9 is required by the IRS and noncompliance can result in backup withholding on any future payments. Many business owners tell noncompliant vendors their future payments will not be issued until a completed W-9 is received. Many accounting software packages have tools or modules to assist with the 1099 process—doing some research on the functionality of the software you’re using could help cut down on time spent tracking down payments and W-9s for vendors.
3. Review Your Profit & Loss Report
Take some time to review your profit and loss report to identify any transactions to discuss with your tax professional. Large expenditures that belong on the balance sheet could be hidden in accounts like office supplies, computer equipment, repairs and maintenance, or contract labor. The IRS’ de minimis safe harbor is $2,500 per item, but your business may have previously established a different limit within its capitalization policy. Be sure to follow your business’s policy, even if different from the IRS’ de minimis safe harbor. Keep in mind that there could be multiple payments for a project, pushing the total over $2,500. When in doubt, reach out to your tax advisor for guidance.
4. Review & Reconcile Accounts Payable & Accounts Receivable
December is a great time to review accounts payable and accounts receivable for accuracy. This can help your business stay ahead of any customers that need a nudge on payment or check in with vendors to see if money is still owed. Evaluate any receivables or payables that are past your industry or contractual terms to determine if the amount is still owed, if it was entered in error, or if it has already been paid but the payment was applied incorrectly. For invoices significantly past your contractual terms, determine if these balances are collectible or if a reserve should be booked or perhaps a bad debt written off. Having accurate aging reports helps provide a more realistic view of future cash inflows and outflows for your business.
5. Consult with Your Tax Advisor
Tax laws are continuously changing, so it’s important to be mindful of any rules and regulations that might impact your business. Meeting with your tax advisor now to run an income tax projection will facilitate an opportunity for year-end planning and also can give you a head start on planning for the subsequent year.
Proper planning now can help prevent stress in the upcoming months. If you have questions or need assistance with year-end tasks, reach out to a professional at FORVIS or use the Contact Us form below. You also can learn about our services for small to midsize businesses by checking out our Outsourced Accounting Services webpage.