Year-End Tax Preparation Tips for Small Businesses
As the end of the year approaches, small business owners face a critical opportunity to prepare for tax season and ensure their financial records are accurate, deductions are maximized, and compliance is maintained. Proactive preparation not only streamlines filing but can also reduce your tax liability.
In Week 5 of our 6-part series on getting ready for the 2024 year-end tax season, we’re focusing on actionable steps to prepare your small business taxes before the year ends. Let’s dive into essential tasks that can set you up for success.
1. Reconcile Your Accounts
Reconciling your accounts ensures your financial records match your bank and credit card statements. This step is crucial to identify discrepancies, catch errors, and maintain accurate records.
How to Reconcile Accounts
Compare your business’s bank statements with your bookkeeping records.
Match each transaction to ensure all income and expenses are accounted for.
Address discrepancies, such as unrecorded fees, duplicate entries, or missing invoices.
Tip: Use bookkeeping software like QuickBooks or Xero to automate and simplify this process.
2. Review Your Profit and Loss (P&L) Statement
Your profit and loss statement is a snapshot of your business’s financial health and a key document for tax preparation. It provides an overview of your income, expenses, and net profit or loss for the year.
What to Look For
Revenue Accuracy: Ensure all income sources are reported.
Expense Categorization: Verify that expenses are properly classified (e.g., marketing, travel, supplies).
Trends and Outliers: Identify unusually high expenses or missing income that may need further review.
Why It Matters: Accurate P&L statements help determine your taxable income and ensure deductions are properly applied.
3. Identify and Organize Deductible Expenses
Tax deductions can significantly lower your taxable income, but you need proper documentation to claim them. Now is the time to gather receipts, invoices, and records of eligible expenses.
Common Deductible Expenses
Home Office: If you use part of your home exclusively for business, you may qualify for a deduction.
Vehicle Use: Track mileage for business-related travel or expenses like fuel and maintenance.
Supplies and Equipment: Office supplies, tools, and technology used for business purposes are deductible.
Professional Services: Fees paid to lawyers, accountants, or consultants.
Employee Wages and Benefits: Salaries, bonuses, and benefits for employees.
Tip: Keep detailed records, including receipts and explanations for each expense, in case of an audit.
4. Plan for Major Purchases with Section 179
If your business needs new equipment or assets, the Section 179 deduction allows you to deduct the full purchase price of qualifying items in the year they’re placed in service.
What Qualifies?
Equipment and machinery.
Business vehicles (with certain weight limits).
Software and office furniture.
Action Step: If you plan to take advantage of Section 179, make qualifying purchases before December 31 to claim them on your 2024 return.
5. Review Payroll and Tax Withholdings
If you have employees, ensure your payroll records are accurate and all tax withholdings have been submitted.
Tasks to Complete
Verify that employee and contractor payments match W-2s and 1099s.
Confirm that payroll taxes have been paid to the IRS and state agencies.
Prepare to issue W-2s and 1099s by the January 31 deadline.
Why It Matters: Accurate payroll records reduce the risk of penalties for underpayment or late filings.
6. Pay Estimated Taxes
Small business owners who don’t withhold taxes from a paycheck (e.g., sole proprietors, freelancers) are required to make quarterly estimated payments. The final payment for 2024 is due January 15, 2025.
Action Step: Calculate your estimated tax liability to ensure you’ve paid enough to avoid underpayment penalties.
7. Consult a Tax Professional
Tax laws for businesses can be complex, and year-end planning often reveals opportunities for savings that may not be immediately obvious. Consulting a professional ensures you:
Claim all eligible deductions.
Navigate changes in tax laws that may impact your filing.
Plan for future growth and compliance.
Why It’s Worth It: A tax professional can provide tailored advice and help you avoid costly mistakes.
Final Thoughts
Year-end tax preparation doesn’t have to be overwhelming. By reconciling accounts, reviewing financial statements, and organizing deductible expenses, you’ll not only simplify tax season but also uncover opportunities to save. Taking these steps now ensures you’re ready to file accurately and on time.
At On Target Tax Services, we specialize in helping small businesses navigate the complexities of tax preparation. Contact us today for expert guidance and support tailored to your business’s unique needs.
Stay tuned for Week 6 in our series, where we’ll discuss “Start Strong: Tax-Smart Financial Goals for 2025.”
