Top 5 Tips for 4th Quarter for Small Business Owners
Top 5 Tips for 4th Quarter for Small Business Owners
by Amy Iannone
Can you believe that it is October already? The leaves are changing to beautiful colors, and there is a cold crisp in the air. Is your business organized for upcoming tax time?
Tip #1: Review W9 documentation for all contractors
Did you pay contractors this year? Did you have them complete a form W9? There are apps that can help you request a W9 electronically and help you issue the proper 1099 form.
Be proactive! It is recommended that when you sign a new contractor to your business that you have them complete a W9 before any work starts and any payments are made. This eliminates asking for one later and not getting a response.
A business is obligated to issue a 1099-NEC informational return by January 31 of the following year if they paid $600 or more in the form of cash, paper check, or direct deposited with an eCheck/ACH or through an eCheck/ACH processor like Zelle or Venmo. If the payment was made to a credit card processor (such as PayPal, Square or Stripe), then a 1099-NEC should not be issued, as they may be eligible for a 1099-K form through their processor.
Be sure to add up all payments made to contractors/non-employees (for 1099-NEC) as well as rents paid to individuals, royalty payments for intellectual property, and payments made to legal professionals such as attorneys and accountants (1099-MISC).
Why? There are penalties of about $500 each instance for a business not issuing timely 1099 informational reports by January 31. The more you plan ahead now, the easier this will be.
Tip #2: Keep Personal Expenses Separate
A business should only pay for the expenses incurred by the business from its operating checking and savings accounts and credit cards. The owner’s personal transactions should not be paid directly from the business accounts.
Instead transfer money from the business to your personal accounts (draws or distributions depending on your business entity type) and then pay personal expenses.
Why? This could jeopardize the legitimacy of your business, and there will be less transactions for your bookkeeper and/or tax preparer to sift through and decreases your sharing of personal information.
Tip #3: Get a System to Track Expenses and Receipts
Do you have a shoebox of receipts? Do you have an email box full of receipts? Do you know where all of your receipts are?
Create a workflow system that with every purchase your company makes. Most bookkeeping software nowadays has a feature to attach receipts to each transaction. There are numerous apps that help you take a pic and categorize to make this critical step a breeze!
Use your smart phone or a scanner to make digital copies because the ink on paper fades. Then use an app or a cloud folder to keep them stored with a file name that is easy to search. We recommend using at least two services, so that one is a back-up for the other. For example, attach the receipt in your bookkeeping software and also keep in a cloud folder.
If the receipt is for a meal, write who was present at the meal and what business was discussed. Note that meals that are just for a single owner are not a tax deduction unless the owner is traveling outside of their tax area (about 3 hours). For example, just one person working from a local coffee shop cannot deduct their meal unless they are also purchasing a beverage or a meal for a client, prospect or other business partner and discussing business.
Why? Audits are real! If the IRS selects you for an audit, you will need to have a receipt to prove your purchases are directly related to your business. Bank and credit card statements will not suffice, although they are a great tool to create a list.
Tip #4: Update Your Mileage Log
Every business trip that you make from the location where you operate should be tracked in a log.
It is best to complete a log every day, but if you have not been faithful in doing this, you can recreate one by referencing your business transactions and receipts or referring to your calendar. If you have Google Maps on your smart phone and you keep location services on, you can go to Timeline in Google Maps and see all of the locations you (or your phone) were on any given day.
Be sure to include trips to your insurance, tax and legal professionals, your banking institution and meetings with clients, vendors, prospects and other business partners. If you incurred a parking or toll road expense while enroute to a business errand, be sure to keep the receipt.
Note that commuting from your residence to your place of business should not be included on this log unless you 100% operate your business from your home.
Why? Again, audits are real! You will need to prove each mile was for a business purpose. Mileage rate deduction is 56 cents a mile for 2021. That is a $56 savings on every 100 miles you drive for your business.
Tip #5: Make Your 4th Quarter Estimated Tax Payment by January 15
In order to avoid penalties when you file your tax return, it is best to make quarter tax payments throughout the year to both the IRS and your state (if applicable).
If the due date falls on a weekend or a holiday, then it is due the next business day. For 2022, the due date is January 18, as January 15 is a Saturday and Monday is MLK Day.
It is highly recommended to pay your estimated tax payments online at irs.gov/payments (and also your state) at least a week before, as it takes a few days to process. If you make your 4th quarter payment on the due date or the day before, there is a chance that it will be applied to the next tax year instead. Plan ahead!
You can make up estimated tax payments for fourth quarter if you have not been all year or have made too little of payments.
Why? If you do not make estimated tax payments throughout the year, you may be penalized 0.5% more when you file your tax return which will cut into your profits. Penalties are not a tax deduction.
Do you need help with any of these? We are here for you! Schedule a free 30-minute Discovery Session today.
Amy Iannone | 10/01/2021