Small Business Tax Checklist: Eight Tasks to Do Before January 1

If you run a small business, you might not have the luxury of having an in-house team to keep track of your books, income, and expenses, so the responsibility often falls on the owner’s shoulders. As the tax year reaches its end on December 31, it’s vital to ensure your books are up-to-date so your tax filing will go smoothly this spring and you don’t pay more than necessary. Tax mistakes can be expensive, so you should assemble all the information you need well in advance of filing.

The number of tax-related tasks for a small business might seem overwhelming, but this checklist from Kembel Tax Service will help you stay on top of your finances and prepare your business to thrive next year.

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Verify Your Books Are Up-to-Date

If you’ve fallen behind on your bookkeeping recently, make sure you work to catch up as soon as possible. Check your balance sheet to ensure recent transactions, payroll, and invoices are accurate and up-to-date.

Now is also the best time to follow up on your accounts payable and receivable to get the clearest picture of what your income will be at the end of the year. Ensure you don’t have any outstanding payments and plan for how to settle or report your credit card balances and any other liabilities before the end of the year.

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Review Income and Expenses

Perhaps the most important information to have on hand when you file your taxes is your exact income and expenses, particularly in relation to your budget, income, and expenses from past years.

Start by comparing your cash flow with your bank statements to make sure that the balances match and investigate any problematic transactions that may have led to discrepancies. You should also review your business expenses and verify everything has been reported accurately.

Expenses can include, but are not limited to, business supplies, marketing and advertising costs, travel costs, and rent. Many business expenses are deductible, so don’t let this opportunity pass you by. If you’re unsure if something counts as a business expense, a tax professional can help.

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Organize Receipts and Documentation

Although the tax year is ending, be sure to assemble and organize all original documentation of your income, including invoices, credit card statements, and bank statements, and your expenses, such as receipts, to avoid scrambling when you file. By gathering your documents before the end of the tax year, you give yourself time to fill in any gaps you may discover.

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Review Mileage and Vehicle Expenses

If your small business requires any travel, you may be entitled to tax deductions for vehicle expenses. The end of the year is a great time to review all receipts for gas expenses, vehicle maintenance, and even rental vehicles that were billed to your business. Deductions for vehicle expenses may depend on miles driven, so be sure to look over your mileage before the end of the year.

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Check Payroll and Withholding

Auditing your payroll before the end of the tax year can save you many headaches when you file it later. In addition to ensuring all payroll is processed before the end of the calendar year, it’s a good idea to double check your employees’ personal information, such as mailing address, social security number, and filing status to guarantee their W-2 forms and withholding are accurate.

You’ll have to report your employees’ wages, deductions, withholding, benefits, and bonuses when you file your taxes, so the earlier you get this information together, the better.

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Make Sure Your 1099 Information Is Organized

1099 forms are used to report expenses and income that are unrelated to wages. If you’ve outsourced any work to self-employed freelancers, paid for legal services, or paid rent in the past year, you’ll likely need to submit one or more 1099-NEC or 1099-MISC forms to the Internal Revenue Service when you file your taxes.

When preparing your 1099 information, you may also want to review your withholding from any non-employees and verify the exact amounts you’ve paid to ensure accuracy next year. A tax advisor can help you determine which 1099 forms you need to file for your unique business needs.

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Separate Personal and Business Expenses

Many business owners may use their personal credit cards for business expenses. To make the most of potential tax deductions, make the time to go through your personal bank statements from the past year and track any business expenses that you took on so you can report them later.

However, there are a few caveats to potential tax deductions; namely, you cannot necessarily report any business expenses you also use in your personal life. For example, if you or any of your employees use their personal car for business-related travel, you may only count the mileage and gas that were directly used to serve your business, so separating personal travel and business travel miles is essential. If you’re unsure of how to parse your personal and business expenses, tax professionals can help.

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Review Your Business Entity

Not all income tax forms are created equal, so make sure you know which forms you need to file next spring by reviewing your business structure now. Your business’s identity as a sole proprietorship, partnership, corporation, or other form of business will affect your taxes, so it’s important to understand how in advance.

Once you know which forms you need to submit when you file your taxes, it may be wise to review the relevant documents ahead of time and treat them as a checklist for assembling the documents and records you should start gathering to file correctly.

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Are You Prepared for Year-End Reporting?

The end of the calendar year is a busy time for everyone, but preparing as much of your information as possible before starting a new tax year can save you from even more confusion later. Of course, as a small business owner, the free time to focus on these tasks can be a luxury, especially as you juggle the myriad other responsibilities of running a business.

Start with the big picture by cleaning up your books and generating end-of-year financial reports to give yourself as much information as possible before you get into the nitty-gritty details of tax preparation. If you need help getting your business records ready for year-end, Kembel Tax Service can help with bookkeeping, payroll, and tax preparation.

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