Year-End Tax Preparation
Year-end tax preparation for your small business in New Jersey can be extremely time-consuming, not to mention, difficult and often frustrating. However, it is important to note that your business could potentially face penalties if you were to fall out of compliance with the ever-changing U.S. tax code, which, is reason enough to acquaint yourself with and review common end of year practices, as they not only benefit you, they are simply good tax habits to carry out.
Whether you were to do all of your own tax preparation or were to work with a certified tax professional (or CPA), it is important to ensure that your business is fully benefiting by taking full advantage of the potential deductions, write-offs, and other (often obscure) tax bonuses that are available to you. Not only will working with a tax professional help you in this respect, because of the ever-changing tax laws and regulations, but they can also make certain that you are fully abreast of and able to implement these changes in your tax preparations for the end of the year.
Organizing Your Taxes
In addition to organizing your taxes at the end of the year, it is also a good time for you to review, project, and plan out your impending spending and push expenses, such as, for example, by reducing your taxable income for the current year by pushing your expenses from December 31 to January 1.
Another good, sensible practice is to work hand in hand with your office manager and HR department to ensure that all of your full-time, part-time, and contracted employees receive all of the appropriate tax forms that they will require.
Your Business Documents
Your business documents are unequivocally your greatest asset in helping you to assess your company’s financial health and position, as they unreservedly convey your cash flow, your assets, and liabilities, as well as your profit and expenses. In addition, they show you what type of adjustments you might have to make, where they are most required, and the amount that is needed. Lastly, if your New Jersey business is in need of additional resources, or might be interested in possible expansion or mentorship, your financial documents are the best way in which to communicate your business’ wellbeing to other parties. Consequently, getting your financial documents in order will help you and the tax professional with whom you might work to realize your greatest tax savings and ultimate benefits.
In short, it is truly in your best interest to be prudent with how you address and deal with your business’ tax preparation. By taking the following few right steps, not only will you be heading in the right direction, you will be certain to save yourself time, and finally, money.
Balance Sheet Report
Before year-end, start off on the right foot by reviewing and preparing a balance sheet report (detailing your assets, liabilities, and equity), an income state report (detailing revenue, expenses, and profit), and a cash flow statement report (which details your opening and closing cash within specific periods, with itemized cash inflow and outflow).
Your balance sheet will help you to determine whether you are in the red or the black; that is, it simply compares everything that your business owns against what it owes. Things a business might own can be property, equipment, product inventory, invoices to be collected, and even trademarks. A business might owe things such as invoices they must pay or other financial obligations, including pensions. By comparing what you own versus what you owe, you can determine whether your business should be cutting back on its spending or making overt strides to grow.
Year-End Income Statement
Your business’ all-important year-end income statement clearly lets you know whether you are earning more than you or spending, or to the contrary. Simply, it merely compares the amount that your business has earned during a specific period of time in comparison to the amount that your business has spent. Also known as a profit and loss statement, it is very different than a balance sheet, in that unlike a balance sheet, which solely focuses on a specific item or instance from a specific period of time, an income statement concentrates on expenses and earnings over a broad period of time. To prepare your year-end income statement, first choose a specific time period in which you would like to focus, write down all of your revenues and gains on the top of the page, then note all of your expenses and losses on the bottom of the page, subtract the figures on the bottom from those on the top, and you will then see your net income from that period of time. Thereafter you are ready to prepare your year-end cash flow statement.
Cash Flow Statement
Quite simply, a cash flow statement should not only show how much cash you have at the beginning and end of a specific period of time, but also where it went or how it was spent. In determining this information, you will need to document your cash flow from operations, that is, the money either gained or spent while conducting routine business. You will also need to detail your cash flow from your investments, such as assets bought and sold. Lastly, you will need to specify your cash flow from undertakings such as loans and their eventual repayment.
By taking all of this itemized information into account, you should readily be able to determine how much cash you have at the end of this period in comparison to the amount you had at the beginning of the period, thus clearly detailing whether you generated or lost money.
From these documents you produced, you are now ready to put your financial reports together and can calculate your current ratio (your current assets divided by your current liabilities, which, ideally, should be between 1.5 and 2). For clarification, a current ratio of 1 means that you may not have enough money to last the year, while a current ratio of 2 might mean that you are not investing enough into your outside investments or business. You can also compute your debt ratio (your total debt divided by your total assets). While a good debt ratio largely depends on your specific industry, anything below 0.3 is thought to be fair, and anything above 0.6 generally tends to make it difficult to speculate on additional loans. Lastly, you can also determine your gross profit margin (first, divide the amount you have leftover after having paid your costs by your total revenue, which is the total amount of money that you took in). This amount details what specific percentage of your income is actually your profit.
At the very least, you should run and keep these statements every month, or at least every quarter so that you can consistently know the state of your business and prepare appropriately. These statements are sure to provide you with an accurate snapshot of your business’ financial health.
Prepare For Official Tax Season
Although it might still be somewhat premature, as it is not yet the start of the official tax season, the end of the year is a good time in which to start getting your tax documents together as well, as the financial reports that you have just prepared in the previous steps are greatly beneficial in assisting you to fill out your small business return. You may also require additional tax forms, including Form 1099-NEC, Form 1096, W-2 Forms, W-3 Forms along with state and federal returns – annually (Form 940) or quarterly (Form 941). This is also an opportune time in which to gather all of your deductions as well as to compile both your business and personal income, if relevant.
Assess Financial Goals
Now is also an appropriate time in which to assess your financial goals for the past year, that is if you had any specific goals. You should review them by questioning whether or not your goals were achieved? If so, why? If not, why? If they were exceeded, why and how were they achieved? If your goals were to have fallen short, why and how did they fall short? Taking all of these matters into account, what are the next steps for your business, and how do you expect to achieve them?
Don’t Forget About Employees
Often overlooked, in your year-end planning, don’t forget about your employees, as they are the most important criteria for your success. What can you do for them? What would boost their morale and company loyalty? What would they most value? Perhaps an end-of-the-year party? Time off?
Don’t Forget About Yourself
And lastly, most overlooked, don’t forget about yourself. Everybody needs time off. All too often, small business owners overlook their own time off until after the year is totally over. Don’t put it off. Think about it now.
Having taken care of all of your year-end planning, it should be comparatively easy to start planning for the upcoming year, as, with all of the experience that you have garnered in focusing on your year-end taxes, it should be much less time consuming and more convenient to plan for next year.
Still, have questions about getting your New Jersey business ready for year-end taxes? Tsamutalis & Company LLC will work with you throughout the year to ensure compliance with tax laws and regulations while also maximizing your profits. Contact us to learn more about what it’s like to work with our team for your New Jersey small business accounting and tax needs.