In a perfect world, every business would be monitoring and recording important financial activity and data throughout the year. When you meet with your tax preparer, business consultant, or any other advisor and need to make informed decisions, the financials would be neatly organized and ready to go.
Of course, if you haven’t been able to keep up with your financials, that doesn’t make you a bad business owner, and there’s no need to panic. However, there are certain items that do need your attention before ringing in 2024, so we’ve created a short checklist to help you get caught up.
Several items absolutely must be done by December 31, while others could help you reduce stress in the new year if you tackle them now. Take a look at this checklist to see where you stand.
Classify Transactions in Your Accounting Software
Ideally, you would have business accounts automatically feeding each new transaction into accounting software. For example, every time you receive a payment or a business expense is paid, that transaction would be automatically classified in QuickBooks.
Of course, whether you’re using accounting software, Excel spreadsheets, or a paper notebook to track financial transactions, your tax preparer will need records of your income and expenses broken down into categories. Also, it’s always helpful to be able to review this information and generate reports to see how your business is performing financially.
Identify Business Transactions from Non-Business Accounts
Over the course of the year, you may have made a business purchase with a personal credit card or check, whether intentionally or unintentionally. Perhaps a purchase was considered a loan and the intent was to pay back the owner. Regardless of the circumstances, make sure you identify and account for any business transactions from personal credit cards, checking accounts, savings accounts, etc.
Determine Whether You Should Have Been Running Payroll
If your business is an LLC, you as the business owner are likely taking owner draws as income. If your business is an S Corp or C Corp, you should be running payroll. If you haven’t been running payroll, you must do so by December 31.
Determine Whether Actions Should Be Taken to Support Your Tax Strategy
There are certain activities that can be advantageous to your business from a tax perspective. For example, your tax advisor may recommend specific business expenditures before the end of the year to reduce your tax obligation. You may also need to fund retirement accounts. Speak with your tax advisor soon to clarify which actions should be taken before December 31.
Get Your Last Batch of Invoices Out
Send invoices out as soon as possible so clients have time to pay before December 31. Follow up when appropriate during conversations and via email. This will ensure that revenue from work performed or products sold this year will be applied to 2023. Generally speaking, timely invoicing can also help you avoid cash flow issues.
Start Gathering Mileage Data
This is a common headache at tax time, especially for professionals who don’t spend a lot of time on the road and aren’t used to tracking mileage. Going back through your calendar to identify meetings and calculate mileage can be time-consuming and prone to error.
Consider using a mobile app like MileIQ to automatically track mileage for tax deductions or reimbursement in real-time. You can easily classify each trip so you don’t have to play catch-up after the fact.
Prepare to Distribute 1099s
If you’ve paid a taxpayer $600 or more in non-employment income during 2023, you need to issue a 1099 form so that taxpayer can report the income to the IRS. Keep in mind that different types of income, such as freelance compensation, dividends, interest, and retirement distributions, require different types of 1099s. Corporations do not need 1099s.
These forms must be received by January 31. Start making your list of taxpayers who should receive 1099s so you’re ready to go after the holidays.
If you haven’t made tracking and recording financial information part of your business process, use our checklist to help you get started. This will help you understand how your business is performing, make better decisions, and reduce stress in the future!