Its February 2020, and it’s time to begin finishing getting things ready for your tax preparation. The biggest challenge is focusing on key elements on what you need to do so you don’t overstate or under report your business profit.
6. Loans and Lines of Credit – Always do a year-end review to make sure that the interest payments you record match the interest payments received by your lender, i.e. car payments, loan payments, vendor payments, etc. If there is a discrepancy, ask for an amortization schedule to determine the difference.
7. Credit Card Customers – If you receive credit card payments from customers, understand that you will be receiving a Form 1099K from your merchant processor, in January 2012. The purpose of the form is to alert you and the IRS how much you received, and how much was paid in fees. This may be a wake-up call for some owners and give them the opportunity to reconsider searching out other processors, but this has to match your books and your tax form, because this will be compared when you submit your paperwork to the IRS.
8. Vendors 1099 Information – You are required to issue a Form 1099 for every vendor who is considered a sole proprietor. This could be an individual or a company who is listed as an LLC who files as a sole proprietor. To determine this, a Form W-9 from the IRS must be completed, and the vendor will let you know what tax status they are. The Taxpayer Identification Number, address, and amount paid to the vendor must be correct in order to prevent penalties to the business owner. However, if you fail to properly file the information, below are the penalty phases:
Correct Filing – $30.00 per return, a maximum of $75,000 for small businesses, filed up to 30 days after the required filing date; more than 30 days late but on or before August 1st, $60.00 per return, a maximum of $200,000 for small businesses; after August 1st, $100.00 per return, a maximum of $500,000 for small businesses
Incorrect Filing – if the return is sent without the required information intentionally, it is $250.00 per return or 10% of the amount required to be reported on 1099-MISC and certain other returns
Payee Statement – if the return is not furnished to the payee, $100.00 per return, a maximum of $500,000 for small businesses
9. Closing the Books – Once everything has been completed and you’ve prepared your tax return after the adjusting entries from your tax preparer have been received, close your books and password protect them from anyone who has access. As IRS auditors continue to increasingly legally request electronic copies of a business owner’s financial records, if they don’t match with the tax return, there could be serious repercussions.
10. Back-Up Data and Closing the Books – With the increasing use of technology, it’s imperative to back-up your information on a continuous basis. Considering the amount of work hours and money used to create these financial reports, it’s nearly impossible to calculate how much it would cost a business having to reconstruct their financial records from scratch should their file become corrupted or lost altogether.
Dwayne J. Briscoe