Preparing Your Finances For Year-End

Preparing Your Finances For Year-End

Maria Pearman 0:11

I’m a CPA with expertise in beverage alcohol, and today we’ll be talking about preparing for year-end. Year-end is the period between December 31st and wrapping up your books to send to your accountant—let’s call that February. Those two months at the end of the year can be incredibly hectic for both businesses and the accountants preparing their taxes. We’ll cover a few strategies to help streamline that process, take away some of the headaches, and give you an edge on a smooth tax preparation and compliance workflow. Today we will cover accounting housekeeping, tax strategy, and details around 1099s and W-2s.

Maria Pearman 1:02

First, let’s talk about accounting housekeeping. When you deliver your financials to your tax preparer at year-end, one of the first things they check is whether retained earnings roll over properly from year to year. Rolling retained earnings means that if you look at the retained earnings balance from December 31st of the prior year plus or minus the current year’s net income or loss, it should equal the end-of-year retained earnings balance. In practice, we often see that the beginning-of-year balance does not match what was reported on the prior year’s tax return. This usually happens because a transaction was booked with an entry date prior to the end of last year in the accounting software.

Maria Pearman 2:18

To the best of your ability, close the books completely before sending them to your tax preparer and make sure there are no remaining changes for the prior year to avoid headaches. Another housekeeping point is to review all open transactions, such as sales orders and purchase orders, to make sure they are resolved. Review your accounts receivable and accounts payable, as well as reconciliation reports for bank and credit card statements, to ensure there are no duplicate entries. Addressing these open items before handing off financial reports to your CPA makes for a much cleaner tax preparation process.

Maria Pearman 3:14

The second area is tax strategy. If your company is profitable during the year and you issue K-1s to members, those members will be allocated taxable income on their individual tax returns. Most companies include a provision in their operating agreement allowing for tax distributions to issue checks to partners to cover the tax burden from their K-1 allocation. The key issue here is timing: tax distributions are typically issued around March or April, which is often a low point in the year for sales and cash flow. If you know by November or December that you will be profitable, start planning early for how you will cover those springtime tax distributions to avoid a cash crunch.

Maria Pearman 4:38

The third point covers 1099s and W-2s. 1099s are issued to non-corporate service providers to whom you have paid $600 or more over the course of the year, and these forms are due to recipients by January 31st. Performing preliminary steps earlier in the year—such as collecting W-9s and updating vendor addresses—will streamline your workflow in January. On the W-2 side, your payroll provider typically files these forms, but if you operate as an S Corporation, there are specific adjustments required for fringe benefits provided to shareholders owning 2% or more of the company.

Maria Pearman 5:31

These fringe benefits—such as the personal use of a company car or life insurance coverage—must be reported on the shareholder’s W-2, even if they wouldn’t be required on a non-owner employee’s W-2. Be sure to account for these items and communicate with your payroll provider before year-end. Hopefully, these tips will make year-end a little cleaner, smoother, and less stressful. I’m Maria Pearman with GHJ in Los Angeles—please reach out if you have any questions!