With the hustle and bustle of year-end, it is easy for small business owners to forget to take care of the necessary t-crossing and i-doting that come with year-end. Consider these often-forgotten year-end business reminders before you close out your fiscal year..
- Year-end Donations
One way that you can reduce your tax liability is by reducing your net profit. What does this have to do with donations? If you have been planning to make specific donations this year but have not done so yet, now is the time. By making eligible donations, you can reduce your net profit and, hence, your tax liability for the current year. Just remember, the donation has to happen by the last day of the fiscal year.
- Revisit the Prepaid Accounts
Prepaid accounts reflect payouts your business made during the year for services (or products) that have yet to be recognized. As you end the year, make sure that the prepaid balance accurately reflects where the business is regarding payouts made in advance. If some expenses that have been recognized are still sitting in the prepaid account, move them over to the appropriate expense account on the Income statement. Consult with your accountant if you are not sure.
- Clear Out the Unmatched / Unapplied Account
The Unmatched (unapplied) account is where you store expenses or income that you are not sure what they are or how to apply them, with the goal that you will look at them later. Nevertheless, as we know, the “later date” is not on the calendar, so the item never gets dealt with. Before year-end, you should clear out the account so that your financial statements will adequately reflect how the business performed. If possible, make it a habit to clear out the unmatched (unapplied) account at least once a quarter. That will relieve you of the headache at year’s end of trying to remember what a March transaction in the unmatched (unapplied) account is related to. Remember, the balance in the unmatched (unapplied) account should be $0 on the last day of the fiscal year. Work with your accountant to resolve any transactions you are unsure about.
- True-up the Accrued Liabilities Account
The accrued liabilities account houses any expenses for a given period you are aware of but have not been invoiced for. For example, if you usually get invoiced monthly for a magazine subscription, but as on the last day of the fiscal year, you have not received the invoice, you need to make a journal entry to accrued liabilities for the amount of the subscription. What if you do not know the amount? Call the vendor and ask, or simply make a reasonable estimate. Remember to clear the invoice from the accrued liabilities account when the invoice is received. The goal is always to present financial statements that are, to the best of your knowledge, a true reflection of how the business performed.
- Write-off Any Obsolete Receivables
At year-end, take a look at your receivables account to see if you have any old receivables on your account that you know will most likely never be collected. Write these receivables off to the bad debt expenses on the Income Statement. Again, the goal is always to present financial statements that are, to the best of your knowledge, a true reflection of how the business performed.
- Check the Tax Credit List One More Time
The list of tax credits available to small businesses continues to grow. However, many businesses are unaware of which credits they qualify for and lose out on crucial tax savings. As the year draws to an end, get with your tax accountant to learn what tax credits apply to your business and ensure that you meet all the qualifications before the year draws to a close. Do not leave free money on the table; take it and use it to grow your business.