5 Year End Tax Reminders From: JJMFinance
As we approach the end of the calendar year, here are five things to remember before you overdose on eggnog and Christmas cookies!
1. Update your bookkeeping—If you have ignored your bookkeeping administrative tasks for months, it is time to start getting your sales, expenses, and profit numbers in order for tax time. If you don’t have a bookkeeping system for your business yet, it is time to find one that you are comfortable with and start using it. Good bookkeeping leads to clean and properly filed tax returns—without good bookkeeping, it is almost impossible to file taxes correctly.
2. Consider an ‘expense surge’—Depending on your tax situation, some small business owners can benefit from purchasing certain items before the end of the year to count as an expense and reduce your taxable income for the year. However, don’t use this as an excuse to buy things you don’t need! This is often a good strategy if you plan to purchase a major expense within the first three months of the year—just fast forward the expense. If you plan on implementing this, you must know where your taxable position currently lies to make sure it makes sense.
3. Don’t forget about your “self”—First time small business owners often forget that they are required to pay self-employment tax. Don’t let this significant tax sneak up on you when you file your taxes. Prepare for it now. Surprises are just about the last thing you want when filing your taxes. Knowledge and preparation eliminate dreadful surprises!
4. Line up your legal ducks—The end of a year is a natural time to make sure your business is legal. Have you looked into your business ID, a local sales tax ID, paying state sales taxes, a federal tax identification number, and all the other legal ducks that are swimming around your business’ pond? I suggest not putting this off as a New Year’s resolution—try to get legit this tax year.
5. Substantiate now to rest later—Substantiation is a fancy accounting way to say, “proof that a transaction took place”. Gather your receipts for the year and make sure you have proof that all your sales took place. Telling the truth to the IRS requires more than you just telling the truth—it requires you to prove you are telling the truth. A garbled mess of receipts in a shoe box does not count either—you must be able to find what you are looking for and have it integrated with your bookkeeping system.
JJMFinance is a CPA who is passionate about accounting and Etsy and has helped thousands of small business owners navigate the treacherous waters of bookkeeping, taxes, and making smart financial decisions.