It’s almost the close of another year and that means it is time to start preparing the records of your business for the year end. While the thought of tackling this task may feel just a smidge better than having bamboo shoots crammed under your fingernails, it’s a must-do so you can see the true financial health of your business. Yes, we all have the best of intentions of staying on top of our bookkeeping every January 1st… this will be the year we don’t let receipts stack up on our desks! But then reality hits, and we all get busy. We have other priorities that draw our attention away from the tasks that feel as mundane as washing the dishes, and we know we can let it slide a bit because we’ll eventually have to work on it to appease our tax return preparer. So, we find ourselves in December, saying, “Oh my… that stack of receipts is higher than Encyclopedia Brittanica volumes A through M.” So where to start?

First things first, make sure all your assets are accounted for. Take a look at your 2022 annual tax return for a starting point; whether you file a personal Form 1040 and include your business information on Schedule C, you file a Form 1065 annual income reported for a partnership you are involved with, or your business files one of the various corporate annual returns (the 1120 series), you will want to review the asset list reported and take note of any changes you should report to your tax return preparer. Make a list of any large or small equipment purchases made in 2023 and gather copies of any receipts or loan agreements that he/she may need to include that information on your 2023 return.

If you have employees or utilize contractors, you will want to gather those records together. For employees, pull together copies of the quarterly Form 941s and reciprocal state withholding tax returns filed, gather copies of their last paystubs, and verify that the annual W-2 and W-3 reports will be filed by your payroll service provider, or mark a date on your calendar in January to dedicate to this annual task. Make sure to outline any benefit information for your tax return preparer, no matter how it is financially handled between the business and the employee.

If you utilize subcontractors in your work, gather a list of those individuals and how much was paid to them. It is essential you take the time to speak with your tax return preparer about the amounts paid to each and the services provided so they can provide clear guidance about whether or not you will need to file Form 1099. Though the hard and fast threshold for having a requirement to file Form 1099 is if you paid an individual more than $600 for work performed, did you know you need to file Form 1099 if you made payments of over $600 to an attorney??? To keep yourself out of a potentially boiling cauldron with an IRS auditor in the future, slow down and get written verification from your tax return provider about who on your list should receive 1099s and who should not.

The next big step I would recommend you focus on is your true income figure. While it would be tempting to go through your bank statements and simply add up all the deposits listed, that’s not an accurate accounting of the cash earned for your trade, services, or product throughout 2023. Some of the deposits made may be a loan from you personally to the business to carry through a dry income spell. Some deposits listed may be cash-back rewards for your bank’s credit card usage. Some may be reimbursements for materials purchased. You must go through this list with a fine-toothed comb to prevent any false reporting of deposits as income when they should not be counted as such.

Then comes the biggest one of all to deal with: expenses. Nowadays, we are blessed (or some would say “cursed”) with a lot of automatic financial exchanges. Automatic bill-pay, paperless statements, and recurring ACH transactions are an easy way to pay items such as utility bills, health insurance premiums, and rents. However, what if you are a self-employed individual working out of your home and must appropriate 8.4% of your household utility bills to your home office deduction? December is the time to track down copies of all those bills and start a list of what and how much should be appropriated to the business.

The following is a list of commonly used business expenses that should help rattle a few memories from the last eleven months:

• Home office deductions – keep in mind that the percentage you claim must be reasonable and ONLY for the part of your home where ONLY your work is conducted. If your home office doubles as a crafting space, your claim will be limited to just the square footage of your desk and the immediate surrounding area.
• Internet/Phone deductions – note that your Farmville app charges shouldn’t be included.
• Meal deductions - don’t forget to note who you met with on each!
• Travel/Mileage Deductions – you have been keeping that log, correct?
• Dues/Publications Deductions – even if you seldom make the monthly meetings, your annual membership dues for the local Chamber of Commerce are something that should be counted
• Office Supplies Deduction – yes, that box of blue Bic pens is something that should be counted… but maybe not that Santa decorative pillow sitting on the chair in the corner of your office that your kids keep grabbing to use in their bedroom.
• Software Subscriptions Deduction – yes to your Microsoft software annual fee, but no to your online monthly workout fee unless you earn a living in the fitness industry. It must be justifiable!

The key to claiming valid business expenses is remembering two words: ordinary and necessary. There is an element of reasonableness that should be used when determining if an expense can or should be justified for your line of work.

As you wrap up your 2023 records, reach out to your tax return preparer with any questions or concerns, or let your fingers do the walking and hit the internet… just remember to stay to credible resources, not something your cousin’s boyfriend’s aunt saw on Facebook a while back and shared.

As you head into the new year, if you have a tax debt issue hanging over you or your business, commit to 2024 being the year you finally address it. The team at Golden Lion Tax Solutions has over 24 years of experience handling all matters of income and withholding tax debt situations: 1040 debts, 941 debts, 940 debts, 1120 debts, and all matters of state income, sales, and withholding debts. We will always discuss the circumstances with you first to see if you need help and, if so, the options we can begin looking into as a solution path.

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Your future and your family deserve the right protection. Golden Lion Tax Solutions will be your advisor and confidant throughout the entire journey. We guarantee to offer you or your business best-case solutions for your tax debt. We are by your side every step of the way. Start now and get your life back.

For help with your tax debts, email contactus@goldenliontaxsolutions.com or call 833-LION-TAX (833-546-6829)

Disclaimer: There are requirements that must be satisfied in order to qualify for some of the tax solutions we discuss on our website. Not all of our services will be suitable for every client. Golden Lion Tax Solutions is here to help you find the most appropriate solution to fit your situation.