Year-End Planning for Your Business
It’s the most wonderful time of the year! The holidays are quickly approaching, and the year will come to an end before you know it. With that in mind, here are a few things to look over before December ends and we ring in the New Year!
Employee Bonuses & Gifts
It’s been a tough year for all, so you may want to say “thank you” to your employees for being part of your business; whether it be for sticking with you through hard times, or it’s been a record year and you want to share the success. Or, you may be a business that simply has a tradition of bonuses or gifts regardless of what the year has brought you!
If you choose a bonus, be intentional about the amount that goes to the employee. You can pay the full bonus amount while actually giving them a higher total figure so that taxes net out to the check. A second (more popular) option is to give them a bonus and have taxes taken from it.
You may be asking yourself, “How exactly do these options work for both my business and the employee I’m gifting to?”
For a bonus of $5,000, assuming the IRS standard for withholding is 22% and Social Security and Medicare is 7.65%:
Want your employee to be gifted a $5,000 bonus, with the full amount deposited into their bank account? The bonus would actually be a gross number of $7,107.32
Want to gift them a $5,000 bonus, pre-tax? This gives a total bonus amount in their account of $3,517.50.
These figures vary a lot, so make sure both you and your employees know what to expect and how it affects tax payments.
Aside from tax-specifics, another important factor is your 401k-plan rules. Depending on your specific plan, you may need to do withholding and matching for bonus checks, or there may be an option not to. If you’re unsure, the best route is to check with your plan advisor.
Cash, gift cards and physical gifts can be tricky, too. Remember, unless it’s a De Minimis gift, cash and gift cards are always taxable to your employee, and the value of either gift should always be reflected on their respective paystub and W-2. Ensure you add these values to pay stubs and W-2’s in December (not retroactively in January), and if you’re unsure of whether something is taxable, always consult your tax advisor.
Prepare For 1099 Filing
The best time to gather all your information for filing your 1099 is now! Remember, it’s not just your contractors doing your employee-type work, but it’s also anyone who provides your business a service. Whether that be consultants, lawyers, accountants, web designers, social media specialists, repair services or any other similar services, they all need a formal 1099 if you have paid them more than $600 for the year. Gather who these individuals are and their tax information for a headache-free filing.
Have you talked with your tax advisor yet? Taxes for next year are difficult to anticipate with so much legislative uncertainty; however, always go into the new year with a plan! Before the year ends, your tax advisor should be able to help you gauge any changes that need to be made for next year and whether you need to adjust the timing on some expenses or set aside more for taxes. These options have an effect on funds available for bonuses and employee gifts, so start planning now if you haven’t already!
Cash Flow Planning
For many businesses, the first quarter is a slow time for cash inflow. Have you sat down and looked at what your cash flow looks like for the next quarter? Do you need to make changes now or set aside more to cover those expenses? If you’re going to do a draw/distribution for the owners at year end, it’s important to consider how much and how you’ll fund it. Planning ahead for the incoming year can save you both time and frustration later on.
Clean Up Your Books
Accounting for your business is more than a tax obligation, it’s the key to understanding the big-picture finances of your business. While you can have everything recorded, you can’t definitively know where you really stand and what you need to change if you don’t allocate things properly. Keeping things organized helps you allocate your time and energy efficiently, thus allowing your business to run as efficiently as possible.
We know, it’s a lot to think about, but we’re here to help! Reach out to us today!