The holidays are a great time to plan your 2015 business strategy, but there are also a number of financial, tax, legal and management priorities that need to be taking care of before the year is over.
Here are eleven things your small business should do before December 31.
Defer Income (or Not)!
Looking to reduce your tax liability? Small businesses and freelancers can defer income until next year by invoicing after December 31. Obviously, you’ll have to pay that tax eventually, but if you need to reduce your estimated tax payments this year, it’s something to consider. Don’t forget, however, that deferring income this year could push you into a higher tax bracket next year. If you’d rather absorb the tax liability now, invoice early and as soon as a project is complete, rather than waiting until the end of the month so that you can declare the income in the 2014 tax year.
Review P&L Statements and Make Last Minute Purchases
Sure, this is something you should be doing year-round but taking some time now to review your P&L statement can also inform any last-minute purchases. If you’ve made a healthy profit this year (and have the cash flow), are there any major purchases that you could make before December 31 and write off as a tax deduction? What about a charitable donation (also tax deductible)?
Think of ways to reward your employees, if you have a formal performance management program, be sure to conduct employee reviews and determine if and how you’ll reward employees for performance against goals. Will you make those purchases/payments before the year-end or after (2015 pay-outs can help employees defer their income until next year)?
Max Out Your Retirement Plan Contributions
If you’re self-employed and have an IRA you have until tax day 2015 (April 15) to make contributions, but maxing out your contributions before December 31 will lower your taxable income for the year. The max contribution to an IRA in 2014 is $5,500 (plus an extra $1,000 if you are aged 50+).
Line Up Your 1099 Information
If I had a dollar for every time a client sends out 1099s to contractors after the January 31 deadline, I’d be a rich woman! Check that your business has a W9 on file for each contractor it works with (this is one of the most common reasons for missing the deadline). If you use accounting software, you’ll need to set this up in your system. You can also use an online tool called Track1099 that pulls the relevant info from your accounting software and streamlines the process of generating and delivering your 1099 forms.
If you are a contractor, make sure newer clients have your W9 on file.
Review Fringe Benefits Paid Out During the Year
Wage reporting season is just around the corner. Employers can prepare in advance by gathering and reviewing any taxable fringe benefits paid to employees in 2014 such as prizes, reimbursements for moving expenses or education programs, as well as transportation subsidies and health and life insurance.
Take Care of Your LLC/Corporation Obligations
LLC and Corps are required to hold annual meetings, if you haven’t done so yet schedule yours! Likewise, many incorporated businesses may be required to file an annual report at the end of the calendar year (the timing and requirements vary by state). Don’t miss this deadline; it can result in penalties and late fees.
Review Your 2014 Estimated Tax Payments
How much revenue has your business made this year? Have you paid enough estimated tax to avoid underpayments? Or could you have overpaid? Review your books adjust your final 2014 payment as required.
Make the Move Towards Incorporation
If you operate as a sole proprietor or partnership and have scaled your business in 2014, you may want to consider whether an LLC or Corporation makes sense for your business. Incorporating can protect your business assets and afford tax savings, but not always. For a look at the pros and cons, read: Is it Time to Incorporate your Small Business?
It’s Year-End Inventory Time
If you operate an inventory-based business, the IRS may need you to complete a year-end inventory count. It can also help you manage and reconcile your financial statements. Depending on the size of your operations, this can be a large undertaking. Read this article for tips on Procedures for Year-End Inventory Count.
Don’t forget to find ways to celebrate your business successes. Even if your year was challenging and not filled to the brim with good news, look for the wins and share and celebrate them with your team. Oh, and if you choose to party with your employees and clients, the costs are tax deductible – if there’s a business purpose for the get together.
What other things should you take care of? Make sure your website is up-to-date, scope out your marketing plans for the New Year, drop deadbeat vendors (and clients if you feel so inclined) – what’s on your year-end to-do list?