After experiencing the crush of the year-end close, you may wish you had prepared a bit differently. Here are some tips to help things run more smoothly in 2014.
1. Start Now to Maintain Accurate Financial Records
Accurate, up to date books and records are a business owner’s lifeblood. Yet, many small business owners have neither the skill nor the time to properly maintain this critical information. Accounting software can help record income and expenses in real time as well as generate important financial information, but someone has to spend the time to correctly input the data. Even if you don’t need a full-time bookkeeper, you do need someone with technical expertise to update your books so that you have an up to the minute picture of your available funds. For this service more and more businesses are taking advantage of outsourced bookkeepers that can come to the office or work remotely, to provide books and records that are accurate and up to date. By putting these services in to place at the beginning of the year, not only do you have the financial information you need to operate throughout the year, but you have an accurate set of books to present to your accountant at year-end.
2. Keep Records of Business Expenses, Especially Equipment.
Comprehensive expense records are important both for the preparation of your tax returns and for back-up in the event of an IRS or state audit. It is especially important to keep accurate records of the purchase price and the date that any business equipment is placed into service. Purchases of business equipment are generally depreciated and not expensed immediately. However, certain provisions in the tax law, notably the “Section 179 deduction” allow businesses to accelerate depreciation in the year the item was purchased as long as certain conditions are met, which can result in a large tax benefit for the business owner.
3. Segregate Funds Withheld From Employees
One of the most serious mistakes a business owner can make is to use funds withheld from employees’ payroll as a short-term “loan” to the business. These withheld funds MUST be remitted to federal and state governments on a timely basis and should not, under any circumstance, be used for any other purpose. While it may be tempting, misuse of these funds can result in very large penalties and fines.
4. Separate Business and Personal Expenses
Another big mistake is to co-mingle personal and business funds. From the outset, be sure to maintain the bank and credit card accounts for your business separate from any personal accounts. Comingling funds results in confusion come tax time, and the process of separating business and personal expenses after the fact is time consuming and expensive. Even worse, the penalties for incorrect reporting are great. Keep your accounts separate so that you have a clear picture of your business income and expenses, while avoiding the headache of trying to remember which expenses belong in which category when taxes are due.
Resolve to get and keep your books and records in order. Consider outsourced bookkeepers now so that you will be organized and prepared for year-end 2014.