Live Chat Recap: Managing Expenses and Prepping for Year’s End

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Live Chat Recap: Managing Expenses and Prepping for Year’s End

In this OWN IT Live Chat we were joined by Robert Steward and Ryan Walsh, accountants who work with the self-employed and small business owners. They covered questions about getting finances prepped for year end, and what that means for self-employed professionals.

Live Chat Recap: Managing Expenses and Prepping for Year’s End

These slides summarize some of the main ideas presented. You can read the full Live Chat Recap at this link.

https://www.ownit.com/communities/ownit/posts/673776

Get your books 100% up to date (meaning all account activity has been entered and monthly statements reconciled). This way you can give your accountant an accurate Profit and Loss or Balance Sheet.

What's the most important thing a self-employed professional can do to get set for the

end of the year?

Another thing that you want to do before the end of the year is to make sure to collect all of your W-9s. Normally this should be done on an ongoing basis throughout the year, but it is easy to forget or to be unfamiliar with the 1099 rules.

W-9s and W-4s

You should collect W-9s for all the vendors that are eligible for 1099s. 1099s are required when payments of $10 or more in gross royalties or $600 or more in rents, lawyer fees or compensation are made are made to unincorporated business.

W-9s and W-4s

In addition to W9s for contractors, all W4s for employees should be collected and verified. W9s should be on file for all of your subcontractors/v e n d o r s t h a t d o n o t h a v e corporations formed.

W-9s and W-4s

Also, it is important that small business owners start to think about expenses they have coming up and, cash flow willing, make as many of those necessary purchases before December 31st.

Year End Purchases

If you have control over in-year timing of a purchase it is best to push it near the tax year end. You preserve cash balance for most of the year and can still claim an expense.

Perhaps think about purchases that you are planning to make in the new year and think about making them now.

Year End Purchases

Never make unnecessary purchases to save taxes, only make the necessary purchases early to deduct in the current tax year.

Don't buy things that you may need IF you get a new contract or client. Sign on the back of a check before signing on the front of one.

Year End Purchases

1.Payroll Transactions 2.Taxation Treatment of Different Entities 3.Dist inguishing Between the Tax Treatment of Expenses and Income Versus Actual Cash Flows

What is the biggest point of confusion when preparing end of year finances?

Payroll transactions require a lot of logistics in the accounting entries. Without the education almost no one puts these transactions into their bookkeeping records properly.

The employee vs subcontractor issue is one of the most common mistakes made by small business owners and can also be the most costly in tax penalties and interest.

What is the biggest point of confusion when preparing end of year finances?

A competent accountant is your best solution to sorting these questions out.

What is the biggest point of confusion when preparing end of year finances?

If you're serious about your business our panel thinks that you should form a business right away. Forming a company offers you personal asset protection, perpetual existence, and tax flexibility to name just a few advantages.

Should you form an LLC or Corporation?

You can form businesses in most states for less than $1,000.

With an entity formed you can elect for Small Business Corporation

(S-Corp) tax treatment which may save you more than the entity formation cost by ten fold in the first year.

The average S-Corp owner saves $1,000 to $1,200 on every $10,000 of profit as opposed to the same business filed as a sole proprietor or partnership.

Should you form an LLC or Corporation?

What are the top three self-employed tax issues that must be in place for year end?

1. Understand your expenses. 2. Keep a record of everything. 3. Understand your revenue. Get W-9s

from each of your customers or clients and be sure you have supporting documentation for all of your sources of income.

Plan Ahead

When it comes to taxes there is nothing you can do once the transaction has occurred. You should always understand your options and the tax consequences attached to each option when making any business purchase. Ask your accountant ahead of time so that you have all the information available to you to make the best decision.

Plan Ahead

That being said, the best tax planning action you can take as a self employed small business owner is the formation of an LLC or INC and furthermore the election of that entity to be treated as an S-Corp (requires filing of a 3 page form with the IRS, with no filing fee). The cost associated with the formation and maintenance are by far outweighed by the tax savings.

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