The kids are back in school. The holidays are around the corner. Soon there will be autumn leaves on the ground. You are probably thinking more about your holiday plans and less about your 4th quarter bookkeeping.
It is certainly more fun to think about Thanksgiving instead of Q4, year-end closing, and tax season.
Those are all just around the corner, though, and the sooner you get started preparing the better. Here is a checklist of things to do so you can end 2021 with a bang (in a good way).
Step 1: Categorize Your Income
Most businesses have multiple ways that they make money. This can include the different products you sell, services you offer, or even classes that you taught. Maybe it’s all of the above. Either way, they are different flows of income.
Being detailed with your income categorization can be helpful for a number of reasons. It makes it easier to keep track of things as well as helping you see which products/services are more profitable. You can take that knowledge with you into the new year and make better decisions on where to focus your efforts.
Step 2: Account for Your Expenses
It is good to know where your money is going. Some expenses are tax-deductible, but only with the proper documentation. Being detailed with your expense tracking helps with this, as well as providing you with the information to make more informed purchasing decisions.
Make sure things are properly coded so that you are prepared for tax time. It will make your 4th quarter bookkeeping go more smoothly.
Step 3: Reconcile Your Accounts
Don’t wait until the end of the year to do this. Just don’t do it. When Christmas is around the corner, the last thing you want to worry about is bookkeeping. Go ahead and get in the habit of doing your monthly reconciliations now. Start with your bank and credit card accounts, then move on to any asset, liability, or equity accounts. Also, make sure to compare your internal records against the monthly statements you get from those external sources.
Mistakes happen sometimes. The sooner you catch them, the better. Save yourself from a world of last-minute panic and start early. You will be glad you did.
Step 4: Reconcile Your Profit and Loss
Your Profit and Loss (P&L) statement is your best friend. It provides you an overview of your revenue vs your expenses for a certain time period. That way, you can see if there was a net profit or a net loss for that period. This knowledge can be powerful when making decisions.
It is also helpful for tax season. If your expenses exceeded your income, you could use that net loss for that tax purposes. But what if your profits will be higher? Consider making a major purchase that can be depreciated to offset this. Surely there is something your business would benefit from having. This will balance things out and could leave you with fewer taxes to pay.
Step 4: Tidy up Your Aging Report
It is important to keep track of what you are owed by who. That is why we have accounts receivable. As the year is nearing its end, you may want to take a look at any outstanding invoices. This is the time to collect on those. The sooner you do this, the better because your customers will have their own business to worry about come year-end.
Start with the oldest invoices and work your way forwards. Try and collect those payments as soon as possible, so everyone can have that settled come the new year.
Step 5: Verify Your 1099 Information
If you have paid over $600 to a company or individual who is not on your payroll, chances are you need to issue them a Form 1099. This amount makes it taxable so both parties will need to have the proper paperwork in place. You can request a completed Form W-9 from them to get the information you need, including their Taxpayer Identification Number (TIN). This goes for both vendors and contractors.
In the case you have payables outstanding, have a plan in place to pay those off by the end of the year. Your vendors will likely need to issue you a Form 1099 as well.
The deadline to send Form 1099-MISC for most payments made in 2020 is February 1, 2021.
Step 6: Review Your Payroll
This is when you double-check the information you have for 2020’s current and former employees. Make sure it is accurate and complete including the person’s full legal name, Social Security number, and current address.
Confirm that all paychecks for the year are recorded correctly. This includes any commissions or bonuses.
Don’t forget that you will need to send a W-2 to each employee by February 1, 2021, and make sure those forms get filed with the Social Security Administration. Depending on where your business is located, you may also need to submit it to state and local governments as well.
Your 4th quarter bookkeeping duties may vary based on industry, but these steps should provide you a good starting point!
Don’t want to do it by yourself? I’m happy to say – HireEffect™ has your back! Give us a call before Q4 is over and we’ll help you sort it all out.