Time usually feels like a blur after Thanksgiving. With the year coming to a close, it’s time to review your financials!
Don’t worry if you have no idea where to start. Here are some of the most important things to get started on first.
For Employees: Check Form W-2s
Take the time to check if your records show the right personal information, wage, and benefits for your workers. And don’t forget to check Form W-2 previews in your accounting system to make sure everything is accurate.
If you changed your accounting software this year, look out for employee payments before the transition. You may find that the amounts are not computed correctly and will trigger a series of IRS notices and/or penalties.
First off, look out for errors like:
· Errors in the Social Security Numbers
· Employee names in Form W-2 not the same as the employee’s name
· Incorrect addresses
· Wrong benefit codes
Since we are bookkeepers in Houston and have a large international workforce, you also have to make sure your Forms I-9 and related employee files are up to date.
If you spot an error, correct it right away. But if your accounting software doesn’t allow you to make these changes, contact your bookkeeper or customer support for assistance.
December is also the time to determine the right deposit frequency for 2020. To know your payment deadlines, review the lookback period.
State agencies and the IRS usually send notices about filing frequencies before the year ends. If these notices indicate a change in tax rates, input these changes in your system for the applicable period. This is particularly true for the Texas unemployment tax rate.
Were there any changes in your business structure?
If there was a change in the structure of your business from a sole proprietorship to a corporation, for instance, you may be in for a ride. Any changes in your employer identification number of EIN means more tax forms to fill out. You need to submit year-end tax forms with your old EIN for transactions before the change. After the changes, you should report wages in your tax form with the new EIN. Please ask your bookkeeper about this ASAP if you had a change like this during the year.
For Independent Contractors: Check Form 1099-MISC
Contractors have their own issues. If you have contractors that you paid more than $600 to during the year, you may need to file Form 1099-MISC to report the payments. While doing this, check if all the contractors you paid appear in your accounting software or on you contractor list.
Like what you did for Form W-2, make sure that the Tax Identification Numbers are correct.
Check the spelling of the names too. If you hired individuals, the contractor’s name should match with the name on their SSN card. The SSN should also be correct. Businesses you hired, on the other hand, should have the right Business Legal Name and Employer Identification Number or EIN.
Another thing to do during the process is to check any payment owed to a contractor to see if everything is correct. You only need to file Form 1099-MISC if you paid a contractor in cash, check or through bank transfer. But if you paid less than $600 to a contractor, you don’t need to file this form.
Eligible contractors paid through other channels like Paypal or your credit card will receive Form 1099-K from the payment platform, not from you.
Plan payroll direct deposits and other scheduled transfers with holidays in mind
There are several bank holidays in the upcoming weeks. So, it would be best to start planning your direct deposit schedules and other financial activities to avoid delays. Be on the lookout for these holidays.
- Nov. 28 -Thanksgiving
- Dec. 25 – Christmas Day
- January 1 – New Year’s Day
Moreover, your accounting software may also have restrictions on the last day to approve payroll.
Input all transactions in your accounting system
Catching up with your bookkeeping should be high up on your to-do list. But here are some items that will guide you on what to do.
Update Customer Accounts
First off, check customer accounts. Balances should be updated and correct. If there are overdue balances, this also gives you a chance to follow up on those if you’re not already doing so.
Review Vendor Accounts
Another thing that you need to do is to see if you owe any supplier and if the balance is correct. The next step is to make sure that your balances are correct. You can also confirm the outstanding balance with the vendor to make sure everything matches up.
Schedule Inventory Counts
Among the most tedious tasks before the year ends is to establish the right balance of your inventory. Depending on the size of your business, inventory counts could take an hour or two or weeks.
Finally, you need to establish the right balances of your petty cash, bank accounts, and credit card. You should also categorize unknown transactions. And all of this means you need to reconcile those accounts.
Invite Your Accountant for a Year-End Consult
It’s that time of the year when you should constantly be in touch with your bookkeeper and your accountant.
An accountant can provide inputs about your financials. For instance, they will suggest changes in classifying some items.
If you are using QuickBooks, the steps are simpler. You can simply send your accountant an invitation to collaborate and that’s it.
Before accountants enter the picture, however, your bookkeeper needs to have everything in the system. So, if the bookkeeper can’t keep everything up to date, it would be harder to check if everything is in order.
Now, what if you’re doing the bookkeeping yourself? If you’re hands-on in your business, consider hiring a professional. Having too much on your plate during the busiest time for most businesses is not just stressful, it may reduce your efficiency.
By handing the bookkeeping function to a pro, you can free up your time and focus on the business, not in updating the books.