Preparing for Year End: Things to Do

Now that it’s mid-December, have you reviewed your books to see what you need to do to be ready for 2012? There’s no better time to prepare, assuming you haven’t done so already. If you have, that would have been a good time to prepare. The sooner you get everything together, the happier you’ll be once January gets here.

                And it will get here, make no mistake.

                Have you reconciled all your accounts? I prefer to reconcile accounts monthly – it’s much easier to do each month as it passes by, but if you haven’t reconciled at all yet this year, it’s time to get started.

What accounts should you reconcile?

1.       Checking accounts

2.       Savings accounts

3.       Line of Credit Accounts

4.       Credit card accounts

These are the obvious ones, but also take a look at other balance sheet accounts. Do you have loans you’re paying on? Does your year end balance reconcile to the lender’s year end balance? If you have liabilities, including the dreaded payroll liabilities, are they accurate? Is your sales tax liability account accurate?

                Why do we reconcile? For one thing, if you don’t reconcile your checking accounts, you run the risk of missing income or expenses. If you’ve been recording all your vehicle payments against the loan account without accounting for interest, you’re missing out on the interest expense. Your payroll liabilities may have been paid but not recorded, missing another expense.

                Downloading your transactions from your bank doesn’t mean you’ve reconciled either. How do you know there aren’t any mistakes? If you don’t reconcile, how will you find duplicated transactions? Better to be assured your books are correct than to assume they are. Should you be selected for a random audit, the time to have cleaned everything up would have been when it happened, not when you’re panicked about what the IRS is going to find when they ask for your QuickBooks file, which they now do.

                Check your major purchases too. Did you buy anything during the year that should be listed as a Fixed Asset? Make sure it’s classified properly. Your tax preparer will need to know about any purchases during the year, including the date purchased and amount you paid.

                I’m not big on New Year’s resolutions, but resolving to reconcile your books monthly is a good resolution, any time you make it. It takes so much less time than trying to do it at year end, and that’s a good thing, right?

                 

Preparing for Year End: The 1099 Situation

I don’t know about you, but the end of the year always gets here before I’m ready for it. And whether we’re ready or not, it will be here anyway, so I try to prepare in December, if not sooner, so I at least have a chance at starting 2012 at an advantage.

1099’s are often overlooked until year end, but the sooner we prepare for them the easier they are to get done once January gets here.  The 2011 Schedule C (Profit or Loss from Business for sole proprietors) now has a line item asking: “Did you make any payments in 2011 that would require you to file Form 1099?” While it has always been a requirement to file 1099’s, now the question is being asked on your tax return, and if you answer Yes, the next question is: “Did you or will you file all required Forms 1099?”

If you answered yes to the first part the only answer that works here is Yes. Of course, that means you have to actually have done it, or will do it, or have me do it, or whatever works for you. Otherwise you’re just asking for trouble. There’s a penalty for each 1099 not filed, and last time I checked it was $50 per occurrence.  

Whether you’re a sole proprietor, a corporation, an LLC, or a partnership, you’re required to file 1099’s.

Amounts to Report

$600 or more, unless it’s for royalties, which is $10 or more.

Who gets a 1099?

The following are the biggest categories to be aware of:

• Nonemployee compensation (subcontractors), unless they’re incorporated
• Rental income (yes, you must send your landlord a 1099)
• Mileage, nonemployee
• Auto reimbursements, nonemployee
• Attorney fees and gross proceeds (any amount)
• Car expenses, nonemployee

There are more but those are the major ones that might apply to you.

When to Report

1099’s are due to the IRS by February 28^th, and to the recipients by January 31^st.

If you’ve paid someone more than $600 this year, you’ll want to make sure they’ve provided a W-9 to you, or have provided their EIN. If you’ve paid more than $600 and don’t have a W-9 yet, get it before the end of the year so you’re ready.

If they refuse to provide a W-9, give them no more payments. And in the future, don’t pay anyone without getting a W-9 first, just in case, even if you don’t anticipate paying them more than $600 in a year.

If you’ve made payments and are unable to get the EIN info from the payee, give me a call. I’ll tell you the best way to handle it.

Here’s a link to the W-9 form:  http://www.irs.gov/pub/irs-pdf/fw9.pdf

Meals and Entertainment

Isn’t it cool that we can take meals and entertainment as a business expense? I mean, it’s like getting paid to eat! Running your own business has so many tax advantages!

Alas, this isn’t really one of them. People often think it is, but that would be wishful thinking. There are times when meals are a deductible business expense. Perhaps you’re having lunch with a customer or a vendor or a partner, and you’re talking about business. Then you have a legitimate business expense. Save your receipts, and write the name of your dining companions on the receipt, and the purpose of the meeting. Enter the info into QuickBooks (assuming you’re like most of us and using QuickBooks). It helps to put the additional info into the memo section. Keep these receipts in a safe place where you can easily access them should someone suggest an audit.

That would be the IRS of course. No one else cares who you eat with.

And of course, the deduction on your taxes is 50% of the total, because the IRS assumes you’d be eating anyway. (And yes, tips are included in the total.)

What is not a legitimate business expense? On your way to a job site, for your convenience, being out of the office, not having access to your kitchen. The IRS doesn’t care if your business keeps you away from home, forcing you to eat elsewhere. The way they see it, you’ll eat anyway, whether you’re on the job or just cruising around looking for trouble. Why should that be a business expense?

They actually have a pretty valid point there. I’m not likely to jump on the IRS bandwagon for no good reason, but you can’t use your business to reduce your food costs. You have to eat anyway, don’t you? How does that make it a business expense? You say you wouldn’t have to dish out for food if you didn’t have to be away from home? The IRS says, “pack a lunch then.” You wouldn’t pay your grocery bills out of your business account would you? (Please say no, or we need to have a talk.) Same diff.

Keep your receipts for true business meals. Annotate them carefully. Keep them safe, just in case. If you want to be reimbursed for eating, look into mystery shopping.

And entertainment? What do you think?

Making JE's Accrual Instead of Cash

Are JE’s Cash or Accrual in QB?

(QuickBooks Tip of the Day)

They’re cash of course. But let’s say you’re creating journal entries to accrue payroll, but the client also likes to see a cash report as well as accrual. Your journal entry is going to show up on the cash report, which isn’t what we want to see, is it? It’s an accrual, after all, and we want it to show only for accrual reports. But there’s a workaround for this pesky little situation.

Let it be known -- I can’t take credit for this one. A friend of mine discovered this, and it’s such an amazing solution I had to steal it and share it. It took her several days of working with QB support for them to figure it out as well. I did warn her I would be doing so, which makes my theft okay. Besides, it’s for the public good.

Here’s the key: “Whether a JE appears on a cash report is driven by the AP/AR accounts.”

So . . . if there is no AP or AR in your JE, do this: enter the first line with AP or AR with a zero amount.

And that’s it. The account doesn’t have to be for anything at all, just listed as the first account on the JE, and that will solve the problem for the reports.

It’s a simple solution to a common problem that I, for one, never would have thought of. Like most QB issues, there is a solution, if only we can find out what it is.