The onset of year-end is the perfect time to take stock of what’s worked well for your business, and to examine new strategies that could work to its benefit.
Here are four simple yet impactful financial “to do’s” to complete before the year ends.
Organize your receipts and financial statements. Use the end of the year to get monthly financial statements and documentation you’ll use to support tax deductions and credits you claim—including receipts, mileage logs, and canceled checks—before the year ends. Regardless of the system you use to keep track of your businesses’ income and expenses, your paper trail will be far easier to manage if it mirrors your electronic system. If you itemize advertising expenses in your electronic files, for example, create a paper folder with the same label to store all your documentation and receipts for that category.
If you plan to hand your financial files over to an accountant for tax return preparation, ask if she has a preferred organization system, to simplify the process and eliminate redundancy. (According to a poll by the National Society of Accountants tax preparers charge about $115 extra for record-keeping that takes additional time to organize).
Completing your tax tasks in December ensures you can put last year’s business out of sight—and into the hands of your tax preparer when the year begins.
Consider your growth plans for the next three years. Consider how your business is currently structured—and whether it’s still the best way to minimize risk, while maximizing the growth and financial stability of your business and its most important asset (you!)
Though changing your business structure (for example, making a sole proprietorship into a limited liability corporation) isn’t that complicated, it takes time to prepare, complete and file the required paperwork required in order to make it legally binding and official — particularly if you live in a state that requires you to file articles of amendment, or an annual report.
Establishing a new business structure (and potentially dissolving an existing one) before the year ends allows you to close the book on your old business structure in one tax year—so you can the start the new year managing only your new structure, and its related financial responsibilities.
Check in with your retirement plans. If your business (or income you generate from it) has grown significantly since you first established a self-employed retirement plan, analyze whether it still maximizes your ability to save for retirement, while minimizing your tax burden.
A business owner with a self-employed IRA (SEP IRA), for example, can contribute 25% of his or her net income with pre-tax dollars, but one with a self employed 401(k) account could contribute up to $18,000 of pre-tax income—if the account is opened and funded in the tax year the contribution will apply. Compare your previous income and retirement contributions to your income in the current tax year and projections for the future to confirm you’re still in the right retirement account.
Meet with your accountant. Your accountant can act as a trusted business partner who guides you in making sound financial decisions for your business—but you’ve got to allow time to have those planning conversations outside of tax season. Set up a meeting with your accountant to take place by early December. Use the time to discuss any questions or concerns related to the points above. Share how your business has performed for the year from your perspective as the owner, compared to what your accountant sees in your monthly financials. Discuss your longer- term goals so your accountant can advise you on the best course of action for reaching those milestones, based on your current financial reality.
A year end meeting with your account also gives you the time you’ll need to take action on any financial moves he or she may advise for maximum tax benefits that be completed before year end. These may include including potentially buying or sell new equipment, strategizing the timing of invoicing and collections, and increasing retirement contributions.
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