By Sherry Lutz Herrington
Finally, we’re heading into the end of the shutdown. It’s been a full year since all this chaos started and, hopefully, you have all survived and are ready to move beyond the restrictions and get your businesses thriving again.
As we move our clocks ahead and wrap up our 2020 tax filings, it’s time to regroup and focus on setting yourself up to have everything in order before the end of 2021. I know to some this may seem ridiculously early to even think about 2021 tax filing but, believe me, it’s not!
Preparation and planning are the keys to running any business successfully and knowing how and where you stand financially at any given point can only be done if you have clean financials. Having up-to-date bookkeeping will help you tremendously, both on a day-to-day, month-to-month basis, and also for annual planning.
The key components that you should be paying attention to now are:
Do you have clean accounting that is running smoothly? No business can function successfully for long if you don’t have an efficient accounting system that is kept up to date and is reviewed regularly by a professional. Waiting until the last quarter of the year to take care of what is happening right now will be costly and more time consuming than addressing it immediately and getting caught up as soon as possible. Accounting is a moving target and any delay just compounds whatever issues may exist. Not to mention, it’s hard to know what’s happening in your business without up-to-date data. This is a big picture item that has numerous details but is critically important to take care of quickly.
This is an area we see tremendous issues with at the end of the year. It is required by law that any company using service providers (vendors) who are paid more than $600 during the year issue 1099s to those vendors. Trying to track down all the necessary information to prepare the 1099s is a nightmare if you wait until the end of the year. Every time you hire a new independent contractor, you should issue them a W-9 and require that they complete and return it to you before you pay them. This will ensure that you receive the necessary information in the correct form.
Full instructions and a fillable W-9 form can be found here:
If you don’t already have an annual review of your employee handbook scheduled, then addressing this early in the year would be advised. Laws change frequently and it is imperative, if you are an employer, that you know any new laws pertaining to your employees, and that you follow them. Additionally, if you have employees working for you, you are required to post the updated labor law posters every year. If you have a remote team, you may post a digital copy on a company intranet where all employees have access.
If you are a California employer, you can use the link below to order yours:
QUARTERLY TAX PRE-PAYMENTS
If you own your own business, whether you’re a sole proprietor or a corporation, you are likely required to pre-pay estimated taxes quarterly. Your tax preparer should provide you with the estimated payment amounts (both federal and state) as well as either coupons to mail in or online access information. It is easy to think, “Oh, I don’t have the money for that right now, so I’ll just pay it later.” But that could mean a hefty tax bill next year. It is much easier to pay an estimated amount each quarter and get a bit ahead so you’re not shocked and left scrambling to figure out how to pay an unexpected annual bill.
Preparing now for the end of the year requirement will make life next January much easier and less stressful. I encourage you to take a step back and examine your business from a 360-degree view to see if there is anything else that you can take care of now to prevent pain and inconvenience later. There may be other concerns for your particular business, so I encourage you to take some time to regroup and plan for the end of this year. As we all know, it will be here before we know it!
Sherry Lutz Herrington is the owner of Sherrington Financial Fitness, a business consulting and accounting firm specializing in strategic business planning and solid financial accounting for businesses. She is also the author of Strong Women Thriving (https://strongwomenthriving.com/), a blog which focuses on empowering women to be financially savvy, particularly after experiencing financial abuse. Sherry is currently writing a new book that both shares her personal story and addresses financial abuse. She can be reached at email@example.com.