Small business in California? Here’s what you should do before January 1st.
- Business Tips
Part of the joy of running your own business is setting your own terms. You get to decide what you do and when you do it. But there are hard and fast deadlines in the business world, and the end of the fiscal year is one of them.
So, if you run a business in California, here’s what you should do before the end of the year:
1. Shape up your tax situation.
You’re about to end your fiscal year, and that means it’s a good time to tweak your financial situation to get the best tax deal, especially if your income was higher than usual.
There are two main strategies to do this:
Reduce your income.
This usually means delaying some of your customer invoicing so that the income counts in the next tax year instead of in this year. (Note: this only works if your business is on a cash accounting system.)
Maximize your tax deductions.
If you’ve been considering some big business purchases, you may want to get those in before January 1st so you can claim them as deductions on this year’s taxes.
Another way to reduce your taxes is to make sure you’re contributing the maximum amount into your Roth or traditional IRA retirement account. If you haven’t yet met your maximum, you’ve got until the end of the year to direct any extra cash that way. You’ll thank yourself in a few decades.
This might also be a good time to go through the IRS’s list of Business Tax Credits to see if you qualify for any of them (and to start planning for the ones you want to take advantage of next year).
2. Prepare year-end tax returns.
Hey, while we’re on the subject of taxes, you’ve got a quarterly tax payment coming up in January. Get that ready now so you can start the new year with a clean slate (unless you enjoy scrambling at the last minute to get taxes done).
First, you’ll need to file Form 941 to satisfy your federal requirement. You can file it electronically at Business Services Online. Also, to meet California tax law, you need to submit DE-9/DE-9C forms as well as e-file your payroll tax deposit. (You can find a list of California payroll tax due dates here.)
3. Get ready to close the books.
The end of the year is the best time to give your records a general checkup to be sure they’re in order. Is everything where it should be? Any gaps in your record keeping? Now’s the time to fill them. Pull reports on vendors so you can issue 1099s, track down any missing expense receipts, and make sure all your paperwork is in the correct folder. You should also run a report on any outstanding invoices so you can remind your customers to pay before the end of the year.
Oh, and if you’re one of those entrepreneurs who keeps records by stuffing receipts in a banana box (no judgement), now is the time to look for an accountant. If you don’t nab a good one before general tax season hits full stride, you’ll regret it.
4. Check on your payroll.
First, the general housekeeping. Check the information you have on file for your employees (name, address, and social security number) and confirm that's it's still correct. You're about to file W-2s for tax season, and there are penalties for incorrectly filled-out forms. To be safe, you can run the information you have through the verification tool at the Social Security Administration website.
Also, do a scan to make sure your employee benefits and deductions are accurate, and make sure you've got the correct wage rate listed for each employee. Check on each employee's sick and vacation time and make sure everything checks out. (Easier to fix now than later.)
Finally, if you offered any kind of taxable benefits to your employees throughout the year, now is the time to post them to payroll.
Did you provide a car for personal use? Give away a cruise for the most sales in a month? Pay for employee parking? All of those benefits are taxable and should show up on payroll. There are plenty of benefits that aren’t taxable, though, so be sure to take a look at What Fringe Benefits are Taxable before you dive in.
5. Shop around.
Finally, if you haven’t shopped around for insurance recently, the end of the year is a great time to do it. Go ahead and run new quotes for workers’ comp and business insurance. It can’t hurt to check.
Meanwhile, if you’ve been getting eager pitches from new vendors, take a few minutes to see if any of them might be a good (and less expensive) alternative to your current vendors.
You can also call around to your regular vendors to see if you can negotiate better deals on any regular expenses. (If you haven’t done this since you started your business, we double-down on this advice. Now that you’re a known client, you’ll probably have better leverage for negotiation.)
Shopping around might save you a little. Or it might save you a lot. Either way, reducing your expenses feels great and gives next year’s finances a boost.
We hope this list was helpful to you. Thanks for reading. If your end-of-year financial plans include a workers’ comp quote, feel free to give us a shot. (It takes all of five minutes, usually. We use tech and data science to make everything easy, and the whole process is completely online.)