The kids are back in school. The holidays are around the corner. Soon, autumn leaves will be on the ground. You are probably thinking more about your holiday plans and less about your 4th quarter bookkeeping.
Thinking about Thanksgiving instead of Q4, year-end closing, and tax season is undoubtedly more fun.
Those are all around the corner; the sooner you start preparing, the better. Here is a checklist of things to do to end the year with a bang (in a good way).
Step 1: Categorize Your Income
Most businesses have multiple ways to make money. This can include the products you sell, services you offer, or even classes you teach. Maybe it’s all of the above. Either way, they are different flows of income.
Detailed income categorization can be helpful for several reasons. It makes it easier to keep track of things and helps 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 and provides you with the information to make more informed purchasing decisions.
Ensure things are correctly coded to prepare you 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 asset, liability, or equity accounts. Also, 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 with 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 loss for that period. This knowledge can be powerful when making decisions.
It is also helpful for tax season. You could use that net loss for tax purposes if your expenses exceeded your income. But what if your profits will be higher? Consider making a major purchase that can be depreciated to offset this. Indeed, there is something your business would benefit from. This will balance things out and could leave you with fewer taxes.
Step 5: Tidy up Your Aging Report
It is essential to keep track of what you are owed by who. That is why we have accounts receivable. As the year nears its end, you may want to 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 a business to worry about come year-end.
Start with the oldest invoices and work your way forward. Collect those payments as soon as possible so everyone can settle them in the new year.
Step 6: Verify Your 1099 Information
If you have paid over $600 to a company or individual not on your payroll, you may need to issue them a Form 1099. This amount makes it taxable, so both parties must have the proper paperwork. You can request a completed Form W-9 from them to get the necessary information, including their Taxpayer Identification Number (TIN). This goes for both vendors and contractors.
If you have outstanding payables, plan to pay them off by the end of the year. Your vendors will likely need to issue you a Form 1099 as well.
Step 7: Review Your Payroll
This is when you double-check your information for 2020’s current and former employees. Ensure 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 must 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.
Your 4th quarter bookkeeping duties may vary by industry, but these steps should provide you with a good starting point!
Don’t want to do it yourself? I’m happy to say we have your back! Give us a call before Q4 is over, and we’ll help you sort it all out.