It’s that time of the year again when it’s out with the old and in with the new. This month is the ideal time to clean out business files to get a fresh start for the new year and get paperwork organized. Here are some tips to help small business owners get ready to file their 2012 taxes and get ready for 2013:
1. Get a tub(s) to hold your 2012 files. It’s imperative to keep all your data in case you get audited. Be sure to keep bank and credit card statements, sales data, customer and vendor files as well as any other transaction files that pertain to 2012. Make sure you have receipts and other documentation to support all red flag items such as travel, meals, entertainment, home office, and vehicle expenses. Your 2012 appointment book or a printout of your computerized calendar should also be stored with these documents. This way you can substantiate vehicle expense and material participation in the event of an audit. Then create all new files for 2013. You should retain your 2012 files for four years.
2. Make sure that you keep anything with the status of “permanent file” in an easily-accessible location. An example of a permanent file would be insurance policies and asset files or customer data such as credit applications and contracts.
3. You should also store your 2012 payroll files including timecards, payroll registers, copies of W2s and payroll tax returns. Bear in mind that the IRS requires that you hold on to these files for seven years.
4. Payroll tax returns for fourth quarter and the annual Form 940 are due by Jan. 31. W2s must be mailed by Jan. 31 in order to be in compliance. Check to make sure you have current addresses for each employee. Form W3 and copies of the W2s must be mailed to the government by Feb. 28.
5. Forms 1099 must also be mailed by Jan. 31, however, don’t mail the government copies until the Feb. 28 due date. This way, if one of your independent contractors reports an error to you, you can make the changes without having to send in corrected 1099s to the government. Verify your contractor’s mailing address before mailing, and check the rules pertaining to 1099s. The basic guidelines to follow are: The recipient is unincorporated (unless an attorney) and was paid more than $600 for services rendered during the calendar year.
6. Your fourth quarter 2012 estimated tax payment for your individual taxes as well as corporate tax, if applicable, is due Jan. 15.
7. Make sure your books are in order so you can close out 2012. Reconcile all bank and credit card accounts and review the general ledger to ensure that each transaction has been posted to the proper category.
8. Bear in mind that if your legal form is corporate and you operate on a calendar year, your 2012 income tax return is due by March 15. Hit your tax pro with a copy of your QuickBooks file now before the big rush so you can get the proper attention your business deserves. If you can’t make the deadline, you are entitled to an automatic extension to Sept. 15. Make sure you or your tax pro files the appropriate extension form.
9. Computerize all your transactions, expenses, income, profit and loss statements, balance sheet and general ledger.
10. Tax planning is essential for all business owners. But right now is not a good time to ask your tax pro to review your situation. Unless you feel it’s urgent, you will likely get better attention once tax season is over. After making projections, discuss your numbers with your tax pro at midyear to determine if you are on course with estimated tax payments and to discover if there are any advantages in the tax code that work for you and your business to minimize your tax liability.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitter at BLTaxpertise and at Facebook.