The most common question I hear from my small business clients is “what should I be doing at year end?” The answer to that question would be enormous. So here are the 4 most important items to consider.
- Get a W-9 from your eligible vendors. In order to properly complete the 1099 for your vendors, you need to request filing data about their company. This data comes from a W-9. You can download a W-9 from the IRS website here, https://www.irs.gov/pub/irs-pdf/fw9.pdf. You do need to send all 4 pages. If your vendor refuses to provide this data, you can withhold 28% from all future payments and forward it to the IRS on their behalf. This is specified on page two of the W-9. I always include a letter request with the form explaining the backup withholding rule. It normally gets the attention of your vendors. The earlier you can start this process, the faster you can comply with your 1099 filing rules. A better practice is to obtain a W-9 before ever paying a new vendor.
- Send out 1099 forms. By January 31, you must report payments made to vendors by your company if the dollar value exceeds $600 for the year. The information needed to report these payments comes from the W-9 discussed in item 1. This report is called a 1099. It goes both to the vendor and to the IRS. Payments made to vendors via credit cards are exempt from this reporting since it happens elsewhere. There are other specific rules in this process. It’s best to either consult with a tax advisor or read the instructions found here, https://www.irs.gov/pub/irs-pdf/i1099msc.pdf.
- Verify employee data. By January 31, you need to report all employee compensation to your employees on Form W-2. In order to make this form as accurate as possible and make sure all your employees receive their W-2, ask your employees to verify the information found in their master file or on their last paystub. It will save a lot of headaches if this is completed before your W-2 batch goes out.
- Reconcile fixed assets. Throughout the crazy year, records of assets that need to be capitalized (depreciated) often fall through the cracks. The end of the year is a good time to look at what fixed assets you have, which ones you have disposed of and which ones are new. Since many businesses find it difficult to reach customers in the last couple weeks of the year, now is a good time to track all of them down. Make sure everything on your list matches your asset threshold as well. If you don’t depreciate items that are under $1000, most laptops and monitors produced today are well under that limit and probably won’t be on that list.