A Complete 10-Step Year-End Tax Planning Checklist for Your Small Business

Lynndsy Beckmann

Small business preparation and planning, investment advisory services, QuickBooks consulting

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The approaching year-end signals the time to start preparing for tax season. Tax preparation and planning allow small businesses to stay ahead of the demands of tax season. For many of these businesses, year-end tax planning may be overwhelming and challenging, tempting you to procrastinate on the work that needs to be done. However, doing so would be detrimental to your success.  

Sitting down with your trusted bookkeeper or accountant will help you begin to adequately plan for tax season so you can reduce your tax liability. The following 10-step year-end tax planning checklist will help you set your small business up for success come tax season. When you need trustworthy tax preparation assistance throughout Northeast Nebraska, our team of CPAs at McMill is one call away.

1. Set Your Deadline

Before the new year arrives, you have the period from October to December to make the necessary adjustments in preparation for tax season. Establishing a timeline should prompt you to set aside time to fully prepare before the tax period arrives. It also allows you to check and recheck any problematic areas in your record-keeping, as well as review your tax planning strategies.

2. Pull Together Financial Records

Over the course of the past year, you will have compiled some relevant documentation needed to successfully complete your taxes. These documents include your income statement, which summarizes the revenue and expenses, and the balance sheet, which records your assets, liabilities, and equity. Other records may include payroll documents, bank statements, asset schedules, and inventory records.

These documents give a snapshot of your financial health throughout the year. If you’ve been keeping accurate and consistent records, it shouldn’t be too difficult to gather these statements. Don’t fret if you haven’t started yet, as you still have until December 31 to be well-armed for the coming tax period.

3. Reconcile Loan Balances to Your Balance Sheet

This adds to the total amount of liabilities that will reflect at year-end. You can request a statement from the bank showing the year-end balance to compare it to your records to ensure they match. ​​

Balance sheet reconciliation is crucial for you as a small business owner to ensure your finances are in order. It can help you:

  • Identify potential fraudulent activity
  • Catch accounting errors before it’s too late
  • Monitor transactions and ensure they are recorded properly

4. Separate Any Personal Expenses Paid From Business Accounts

The general rule of thumb is to keep personal and business transactions separate. Consistently take stock of any personal expenses that may be mixed with business expenses. This ensures you have an accurate record of allowable deductions, which reduces taxable income.

It’s also imperative you don’t lose your business records at any time. Always keep a backup of your QuickBooks accounts in a record-keeping system in case of a computer crash or any unforeseen event.

5. Compile Business Expenses

Business expenses can be treated as tax write-offs if they contribute to your business preservation. Keeping these expenses stored in one place, such as a cabinet of manual files or a software program like QuickBooks, will make year-end tax planning less hectic. 

Expense records will include costs related to mileage, out-of-pocket expenses, meal reimbursement, utilities, advertising, and rent. The IRS categorizes most business costs as deductible. There are also proposed tax breaks specifically for small businesses that will go a long way to minimize your tax burden.

6. Take Advantage of Depreciation for Asset Purchases

Assets in a business such as furniture, vehicles, computers, and office machinery attract depreciation, which reduces their value over their useful life. Depreciation is an annual allowable deduction that can be offset against the business income. 

Figuring out the depreciation of an asset can be confusing, but working with your accountant will help ease the process. You must have receipts indicating the purchase of the assets. This includes the purchase agreements for all major purchases. Typically, businesses use the straight-line method or accelerated method to calculate depreciation yearly. There’s also Section 179 and bonus depreciation which allows businesses to calculate a one-time depreciation against the total cost of a qualified asset in the year of purchase.

7. Note Ownership Changes

Sometimes a business can change ownership, which can include bringing in an additional partner or buying out a partner’s share. Any change will affect the equity, which reveals the value of the capital accounts of all owners.

If there’s any change, it’s important to notify the tax preparer. The IRS readily provides guidelines on such a matter including relevant information returns for small businesses to be ready for the tax season.

8. Summarize Estimated Tax Payments

Small businesses are among those required to make estimated tax payments per quarter.  Estimated tax payments are useful in reducing the tax liability when it’s time to file income taxes.  Provide your tax preparer a listing of your estimated payments and date paid so they can be properly accounted for to reduce your overall tax liability. 

9. Summarize Year-to-Date Investment Activity

As the current fiscal year comes to an end, you need to take time to monitor the progress of any investment activity to take advantage of tax planning opportunities. This also involves keeping track of investment activities from the start of the year to date and taking note of any tax deductions. This includes investment accounts such as IRA and 529 plans.

529 plans are not tax-deductible against federal taxes, but some states allow state deductions. It’s also important to be up to date with any employment taxes. 

10. Meet With Your CPA

As your business winds down its current year’s activities, your tax planning strategy must be in place. A CPA has the experience to summarize all the important business activities and processes to ensure you will be ready for the tax period. If you think you still need more time, the CPA can help to determine if you can obtain an extension.

Conclusion

This checklist should help make your tax preparation easy and boost your business’ bottom line. However, tax planning needs to be a continuous process throughout the year to minimize stress and workload as tax season approaches. Hiring a CPA will further reduce time spent on tax preparation so you can focus your energy on your business. As a small business owner in Northeast Nebraska, we know that you’re wearing many hats and tax planning is an extra burden. With our team of qualified tax professionals, we will assist you in implementing the necessary year-end tax planning checklist as the tax deadline looms. Do not hesitate to contact us today.