Every small business owner has likely felt the dread of April drawing near and knowing that they haven’t even looked at their company’s taxes yet. Don’t let that happen again in 2017!
While you may think you still have months to get your finances and accounting in order — now through end-of-year is the crucial time to actually take a look at your profit and loss statements. Why? Because you still have a chance to impact your income and expenses for the 2016 tax year.
Here are some tips for your small business:
- Verify Your Vendors – Make sure you have all of your vendor’s up-to-date and accurate information documented. Congress has enacted legislation that more than doubles most penalties for late or incorrect information returns, this includes 1099 forms. A business must provide a 1099 form to any unincorporated contractors/vendors that it pays at least $600 for services in the calendar year.
- Take Inventory – If you sell products, conduct and record the value of your inventory at year’s end. The simplest way to value each item is at cost – what you paid for the item plus any delivery fees. Remember, if assessing inventory is necessary for determining your small business income, you should generally use an accrual method of accounting.
- Reconcile Your Accounts – If you do not use a bookkeeper, go through all of your credit cards and bank accounts for the business, and reconcile all charges and payments. Make sure the statements match with your records and investigate any unexplained discrepancies.
- Prepare Your Information Quickly – For 2016 some of the business tax return due dates have changed. Partnership due date has changed from April 15th to March 15th and most C Corporations are now due on April 15th, opposed to March 15th. No change has been made to S Corporation (March 15th) or sole proprietors (April 15th).
- Make up a Tax Shortfall – Don’t forget that certain kinds of taxes are due throughout the year. Check to ensure you have made the proper amount of quarterly estimated tax payments during 2016 and pay up before being stuck with a larger lump sum to pay in April.
- Don’t Rest on Retirement Savings – Saving for retirement as a small business owner can be hard. Without a corporate 401(K), you may want to look into a SEP IRA or a solo 401(k). Because you’re the employer and the employee of your small business, you can save up to the overall limit for defined contribution plans: 25 percent of your earnings, up to $53,000 in 2016.
- Accelerate or Defer Transactions – Depending on how your clients pay, you may be able to defer receipt of income this year, which could help you save on taxes. Many sole proprietors (that don’t have inventory) use cash basis accounting, meaning you report income when you receive payment. Consider scheduling your billing so that clients pay you in early 2017 for work you performed in late 2016. This way, you receive the money in the new year. On the other hand, if you had a particularly successful year in 2016, you may want to reinvest in the business before year’s end and take on expected expenses now.