2021 is right around the corner – which means tax season is fast approaching. This year held a lot of uncertainty for all of us and it’s possible we forgot in the chaos some good housekeeping habits for our businesses to make our lives easier when going to file taxes. Last month two of our staff, Jesse Luden and Kym Ramirez share a lot of this information in a webinar. We’ve summarized some of the key points, so you have a quick resource to help you in prepping your business for the new year.
Key Dates:
You may have seen that depending on your business type, your taxes are due at different times. If you are a partnership, S-Corporation or C-Corporation your file date is March 15. Sole Proprietors, who file Schedule C returns with their personal returns file on April 15. In order for us to have the most amount of time to work on your returns, send us your documents as soon as you can. We absolutely need your documents one month prior to the due dates for us to guarantee that your returns will be filed on time. So, for a March 15 filing date we need everything by February 15 and for an April 15 filing date we need things by March 15. If you have any questions, feel free to reach out by phone or email to chat with one of our team.
New this year:
This year, all independent contractors you paid $600 or more you will need to use a 1099-NEC form. In past years you would have used a 1099-MISC. You’ll still be using the 1099-MISC for reporting purposes – such as rent, lawyer, and other items. If you use QuickBooks to track your 1099 venders, make sure the system is mapping your independent contractors to the 1099-NEC form.
Also new this year, make sure you know if someone is an employee or an independent contractor. We talked about the changes the made regarding independent contractors in an earlier blog post which you can find here (link to blog). The IRS is cracking down on businesses that treat employees as 1099 contractors. To put it simply – if you control someone’s schedule, they are an employee not a contractor!
What You Can Do?
Might seem overwhelming if you are unsure where to even start. Here are a few key things you can do to get your accounts in order and ready to send over to your accountant in the new year:
- Reconcile your accounts. We aren’t able to accurately prepare your tax return without your reconciled accounts. It is important to make sure you have captured all income/expenses for the year, and it can help you detect errors or frauds that may have occurred. What accounts should be reconciled? Any bank accounts, credit card accounts, note payables, and lines of credit. Basically, if it is on the balance sheet it needs to be reconciled.
- Use an accounting system. Be it QuickBooks, QuickBooks Online, even Excel, have a process in place and follow it. Look at your financial statements, do they look accurate, did you buy new fixed assets that need to be recorded, did you loan the company more money? All those items need to be accounted for at the end of the year.
- Business vehicle. Did you use your own vehicle for business? Be sure to keep a mileage log of it. You need to be able to provide total miles driven for the year and the specific number of miles that were for business. If your vehicle is used 100% for business make sure you record it in, you books as a fixed asset. Plus, track your expenses for the vehicle care.
- Understand potential deductible expenses. If the expense is personal, such as buys clothing, haircuts, social clubs, it is not deductible for business purposes. Business meals are 50% deductible, travel for business is also deductible. Starting this year Entertainment is no longer deductible. Be sure to keep your recipes – either digital or original copy and make a quick note of what you did or what the receipt is for so you can remember come tax season.
- Purchasing new equipment. Most businesses are eligible for a full depreciation write off in the first year the asset is in place. You can talk with us to help you understand if you could benefit from new equipment and how this can save you in taxes.
Two quick notes for S-Corp and C-Corps to consider: S-Corps – you many want to declare a distribution before the end of the year. C-Corps – think about declaring a dividend.
Important for 2020:
Many of us have been working from home this year, to keep ourselves and family safe. You might be able to make a home office deduction. To be eligible for one you must have a dedicated use of space and have substantial business activity. You’ll need to tell us your total home square footage as well as your specific office space footage. Some expenses related to your home office can be deducted in relation to the percentage used of your home for business. Some examples to get you thinking are mortgage or rent, telephone, utilities, and more. We can talk with you more about specifics to you and your home office.
Now What?
While our office may be closed for the holidays, that doesn’t mean we’re slow in helping you once we get back. Any emails or phone messages you leave us while the office is closed will be responded to as soon as we are back. We hit the ground running come January, so help us help you by getting as much together now as you can. You can contact us anything through our website.
We Can Help With Your Accounting Needs
From managing the day-to-day accounting of small businesses, business and tax planning, to filing with the IRS, LeMay & Company provides full-service accounting to fit the needs of your business. Contact us today or schedule a meeting to learn how a review of your accounting system can benefit your company or give us a call (703) 912-7862.
