Year End Expenditures & Protections

This begins a 3-part series on year-end activities to improve next year’s business

As you approach the end of 2011, a few key financial actions can save or protect money for next year. Many business owners know what to do, but don’t do them. Many more do not know the money saving actions they can take. I will try to share the information. You must decide how you will use it. In addition, I strongly encourage you to consult an accounting and financial planning professional to adapt the general ideas in this post to your specific business.

Overview to Year-End Activities

Small Business: Canada published a nice overview of year-end activities that encompasses financial and more:

1. Get your financial books in order
2. Determine the current position of your business: finances, goals, and taxes
3. Plan for the coming year: set next year’s goals, prepare & implement an action plan
4. Get your tax documents prepared

They also offer several links to help you improve the morale, accounting, and balance sheet.

Year-End Tax Planning

Several experts share ideas for reducing taxes you pay next year. Some of the better ones are Karen Klein’s A Checklist for Yearend Tax Planning in Business Week online. Entrepreneur Magazine published A Year-End Tax Checklist last year authored by Bonnie Lee. The Center for Productivity republished Debbie Gilster 2005 article from Financial Management, Time Management titled Year end checklist for a small business. Sue Clement at Ladypens also share some good ideas. Finally, Business News Daily published 8 Small Business Year-End Tax_ Planning Tips.  I’ve combined advice from all of them.

• Get your books in order
  • Create a 2011 file for all tax information
  • Organize your receipts and ensure all vendor information is accurate
  • Check your balance sheets, profit/loss, and return on investment
  • Take physical inventory of your products & make accounting adjustments
  • Verify loan accounts and clean them up if necessary
  • Establish 401K or other retirement programs for yourself and employees
  • Lookout for local tax credits and other opportunities to reduce tax bills
  • Examine your relationship with financial institutions
  • Make end-of-year charitable donations, Roth IRA conversions, etc..
• Meet with your tax and financial planning pro before the December 31
  • Discuss changes in the tax code that may apply to your business
  • Deduct the full amount of purchases upfront rather than depreciate it
  • Explore tax breaks and deductions from research and development
  • The Retained Worker Credit for each retained worker
  • Form 1099 reporting extension for payments after Dec 31 (possible repeal)
  • Small Business Health Tax Credit for providing healthcare for employees
  • New limit for the amount of farming losses a taxpayer has received
  • Requiring taxpayers to electronically file federal tax deposits (EFTPS)
  • Accelerating deductions and deferring income into next year
  • Declare employee bonuses in 2011 but pay them by March 15, 2012
• Reexamine your business units to determine which should be closed
  • Write a list of all the company’s major accomplishments for the year
  • Evaluate marketing efforts & results to decide where to focus next year
  • Check all of the links on your website to make sure they are active

Year-End Legal Issues

Nellie Akalp reposted a guest post that appeared on Mashable explaining “5 Important Tasks for the End of the Year”. She provides excellent ideas for year-end legal entity issues:

1. Close your business before 2012 if you stopped business activity or performance
2. Create a legal entity (LLC or Corporation) before year’s end if you haven’t already
3. Ensure compliance to renewals, licenses, and other local requirements to your business
4. File any amendments to your company (address, phone, etc.) before year end
5. Tie up any legal loose ends (DBA, Tax ID, trademark) before the end of the year

I want to restate the importance of seeing your accounting and financial planning expert early this month. Do not wait until the year ends before you meet with them. You will miss important deadlines for acting.

Join us on Thursday when we review what to do before year-end to retain your best clients