The end of the year is a busy time for businesses. Most of business owners probably start preparing for end of year accounting procedures. We are here for you. Let’s organize your business and wrap up 2021.
Simple Checklist for Year End Accounting
First of all, your accounting books should be organized. Record up to date business transactions to jumping into closing book.
Gather necessary documents.
Organize business receipts to monthly folder.
Reconcile bank accounts and credit cards.
Review financial statements.
Review Account payable and Account Receivable.
Collect outstanding invoices from customers or Remind them.
Payoff bills to vendors.
Account for inventory.
Make necessary transaction adjustments.
Backup information in a secure place.
Once you complete above, it is a time to check with your accountant to see if there are any additional documents or procedures need for the upcoming year 2022 and tax season.
Two more important things:
Make sure personnel information with employees. You must update employee information such as address to send their Form W-2 (wage report).
Contact to independent contractors if business paid them over $600 during 2021. If you do not see tax ID, ask them to fill put Form W-9 to collect necessary information. So, you are ready to issue Form 1099-NEC.
On March 17, 2021, IRS announced that the federal income tax filing due date for individuals for the 2020 tax year will be automatically extended from April 15, 2021 to May 17, 2021. That means you do not have to file Form 4868 for the tax return extension unless you plan to file after May 17. For any return or payment postponed by this announcement, no penalty and interest to file a federal income tax return and its payment will be accrued between April 15 and May 17, 2021*.
* Postponement applies only to individual taxpayers (Form 1040); estimated income tax payments are due April 15, 2021 for 2021 tax years.
Taxpayers should double-check to ensure they have all their documents before filing a tax return. If taxpayers find errors or missing documents such as a W-2 or Form 1099, they should contact the employers and payers or other issuers to request the missing documents or to reissue corrected forms. If taxpayers do not receive missing or corrected documents in time to their returns, they may need to estimate the payments made to them. Estimated amounts can be reported on Form 3852 on their federal tax return. If they receive the missing or corrected Form W-2 or Form 1099-R after filing their return and the information differs from their estimate, they must file Form 1040-X, Amended U.S. Individual Income Tax Return.
Most taxpayers should have received income documents near the end of January, including:
Forms W-2, Wage and Tax Statement
Form 1099-MISC, Miscellaneous Income
Form 1099-INT, Interest Income
Form 1099-NEC, Nonemployee Compensation
Form 1099-G, Certain Government Payments; like unemployment compensation or state tax refund
On March 11, 2021, the American Rescue Plan announced that up to $10,200 of unemployment compensation paid in 2020 can be excluded from your 2020 tax return if your modified adjusted gross income (AGI) is less than $150,000. That means you won’t have to pay tax on unemployment compensation of up to that threshold.
Additionally, if you are married, the $10,200 exclusion can be applied separately for each spouse. Amounts over $10,200 for each individual are still taxable. If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.
The exclusion should be reported separately from your unemployment compensation. Visit the IRS website for more information.
All businesses should know about their obligations for filing with local, state, and federal tax systems. Businesses with employees are required to withhold payroll taxes from employees’ paychecks. Calculating payroll taxes can be complicated. Here are some basic payroll tax components that businesses and owners should know:
Federal Income Tax Withholding
Federal income tax withholding is withholding taxes from employee pay for federal income taxes owed by the employees. By completing Form W-4, the amount of federal income tax is determined. Employees can change this form anytime to update their information.
Social Security and Medicare
These are also called FICA taxes (Federal Insurance Contributions Act), which is shared between employers and employees. The employer deducts the employee’s share, which is one-half the total due, from employee wages/salaries, and the employer pays the other half.
Additional Medicare Tax
In 2013 as part of the Affordable Care Act, employers withhold 0.9% additional Medicare Tax on employees’ earnings that exceed a threshold. This medicare tax has no employer match.
Federal Unemployment (FUTA) Tax:
FUTA is paid separately from the other taxes by the employer and isn’t withheld from employee pay.
This is basically social security and medicare taxes for self-employed individuals.
Washington State does not impose a personal State income tax on employees. However, they do require State Unemployment and Paid Family Medical Leave to be paid to the Employment Security Department, and disability insurance to be paid through the Department of Labor and Industry.
Here are what employers in Washington State need to know:
Register as Employer
As an employer in Washington, you need to register with the Secretary of the State, and then file a new business license application through the Washington State Department of Revenue (DOR). After submission of application, Washington Department of Labor and Industries (for worker’s compensation) and Washington Employment Security Department (for Unemployment insurance) will notify and provide you the information you need to run your payroll, such as tax rates.
Payroll Tax Filing Requirements
Completed by Employee
Form W-4 (IRS)
Employee information for the determination of federal income tax withholding
Form I-9 (USCIS)
Proof of an employee’s eligibility to work in the United State
Completed by Employer
New Hire Report (form to DSHS or Online report to Secure Access WA)
Report all newly and rehired employees within 20 days of hire
Electronic Federal Income Tax Payment System
System allows employer to set up schedule payment for taxes through online
Form 941 (Quarterly ) to IRS
Report Employee earnings, employer and employee Social Security and Medicare taxes, and Employee federal income taxes
Worker’s Compensation-L&I (Quarterly)
Workers’ compensation insurance for medical costs and wage replacement if injured on the j
WA State Unemployment Tax Report
Unemployment benefits for employees who lose their job
Paid Family and Medical Leave
Paid leave for employee to care for themselves or their family.
Form 940 (Annually)
Pays for administration of the federal unemployment insurance program
Form W-2 and W-3 (Annually)
Security Administration need for recordkeeping. IRS needs for reconciliation with Forms 940 & 941
Quarterly report schedules: 1st Quarter – April 30 2nd Quarter – July 31 3rd Quarter – October 31 4th Quarter – January 31 the following year
Bookkeeping is important for helping maintain accurate financial records and the overall health of your business. Yet, many businesses fail to implement this integral process.
Whether you’re doing your own bookkeeping or having outsiders handle it for you, here are several benefits of prioritizing up-to date bookkeeping.
1. Budget It‘s challenging for businesses to forecast for future expenses and income without any prior year data. Bookkeeping can help organize incomes and expenses properly as well as it makes it easier to review financial health and resources for future planning.
2. Tax preparation Tax preparation is another complex task that businesses must get done every year. In most cases, its frustrating to find or gather all necessary support documents for filing a tax return. A great bookkeeping function can help businesses be more efficient for tax filing process by simply recording information and being ready for tax time.
3. Financial and Business analysis By keeping accurate records, business owners get a snapshot of their company health and standing from financial statements. Financial statements, or reports, allow business owners to know exactly where outgoing money is being spent. They can also help find an opportunity or trend to grow their business.
4. Organization Achieving financial organization is the most helpful and beneficial outcome of bookkeeping for business owners. Thanks to technological development, businesses can increase accessibility to data, conveniently and securely store and share financials and other data, and easily communicate with clients and accountants. A shift from traditional accounting to accounting software encourages businesses to organize and manage their financial information in an efficient manner.
5. Better cash flow Bookkeeping improves cash flow. Implementing the routine recording of business transactions will allow business to track when their customer and vendor invoices are paid. For business owners, ensuring payment and being paid on time are essential for maintaining profitability. Avoiding outstanding balances in Accounts Payable and Accounts Receivable also helps keep financial reports clean.
Now you know why bookkeeping is important. There are more benefit businesses will gain from bookkeeping. In general, it can save businesses time, money, and stress! If businesses need to implement this integral process, consider hiring a professional or contact us. We are here to help train business owners to encourage business growth together.