The importance of routine bookkeeping for every business owner
Effective tax planning requires a reliable set of books.
A clean set of books is necessary for a multitude of reasons. To have reliable financial reports in order to make sound business decisions, to be in compliance with tax reporting, to apply for loans & insurance, and to have restful nights of sleep!
It is to the advantage of the business owner to maintain a clean set of books throughout the year, versus just an annual catch-up at tax time. Why?
Timely awareness of trends in sales, profitability & cash flow allow a faster reaction. Avoid unpleasant surprises.
With accurate customer balances, follow-up of late payments can be sooner & that usually means collections are more effective.
Knowledge of spending trends throughout the year is good medicine, like it or not. If bills are tracked, its critical to have accurate accounts payable balances to maintain relationships with vendors and to possibly identify more favorable payment terms and even discounts.
Up-to-date books allow time, before the rush of tax season, to carefully prepare an accurate financial record and confirm all deductions have been captured. This reduces the risk of errors that can lead to amending tax returns. Businesses with tax-ready financials can often file earlier.
Speaking of taxes… year end tax planning! There are a number of important decisions that should be considered in the 4th quarter. Many depend on a reliable picture of the net income of the business.
Should the owner’s salary be adjusted up or down to satisfy reasonable compensation? Don’t pay more FICA taxes than necessary.
Would it be better to purchase that large asset before or after the end of year?
Carefully review expenses to ensure that all business deductions paid with the owner’s personal funds are reimbursed before the end of the year. It is important to be sure the accountable plan has been followed so as to prevent disallowance of the deductions by the IRS.
Get a jump start on determining the owner’s retirement plan contribution for the year.
Have the owner’s medical premiums been added to their W-2?
Considering making the S-Corp election in the upcoming year? The election must be made by the end of the 75th day of the tax year*, therefore if you’re basing your decision on income thresholds, you’ll be armed to act quickly. (* unless a petition is filed)