Wrapping up 2022 Like an Accountant!
Christmas Time in Accountinglandia
It’s the most wonderful time of the year…or so they say. In my profession as an accountant over the years, year-end just meant my work life was more cluttered with checklists and chores.
No, not a Christmas shopping checklist but tedious and way less exciting financial checklists!
But it’s okay, this is your friendly reminder that 2022 is just around the corner. And so you can tend to those more pleasant and fun lists, like maybe the Christmas cookies you want to bake this year, here is a simple checklist to help keep potential panic and procrastination at bay. Let’s get started.
1️⃣ Empty the “To Be Filed” bin
2️⃣Review your 1099 list (Click for the IRS’s official form and explanation)
3️⃣Get Ready for W-2s
4️⃣Review Your Financials
5️⃣Capital Asset Purchases
6️⃣Review Your Accounts Receivable
7️⃣Review Accounts Payable
8️⃣Quarterly Taxes and Reports
9️⃣Make Final Payroll Adjustments
🔟Next Years Budget
1. Empty that “to be filed” bin.
I live by this saying outer order, inner calm. And despite my beautiful World Market bin that neatly houses all my paid bills and credit card receipts and anything else that needs to be filed, I’m not feeling much inner calm about my filing situation right now. If you too have piles of filing, let’s get out of that boat together. Go ahead and get all your pending filing done. When you’re cleaning up your financials later on down this list, you’ll appreciate the organization when you’re searching for that bill that you think may have been coded to the wrong account.
Trying to decide on a good filing system? Check out this article for ideas, including a paperless filing system:
2. Review your 1099 list.
The rules surrounding the issuance of 1099s have changed
recently. Brush up on your understanding of the rules by reading the IRS guidance and then review the amounts you’ve paid your vendors. Double check you have a W9 for all vendors that qualify for a 1099, and chase down the ones you don’t have by Dec. 31! And I learned this the hard way – for future reference, it’s easier to get a W9 before you pay the vendor’s bill.
3. Get ready for W-2s.
Depending on who does your payroll, manually by you, outsourced to a third party, or you have a software that handles it, if you pay wages you are required by law to issue W-2s by January 31. And if you’re issuing paper copies, the IRS doesn’t let you print them. They want you to use their fancy, pre-printed copies. If you count up how many you need now, you can order them for free from the IRS on their website and they will mail them to you in about 10 business days. Do it, now! And P.S., your employees will ask about their W-2 on Jan. 2 and every day after that until you get it to them!
4. Review your financials line by line.
The devil is in the details, and that includes the details of your balance sheet and income statement. We all want to pay as little in tax as legally possible, and if you loosey-goosey record your bills and receipts without much thought, you may be costing yourself extra tax dollars. Run your financials by line item. Make sure you didn’t accidentally record a $450 purchase as a fixed asset that gets depreciated over 7 years instead of being treated as an expense in full this year. Catch all those corrections now so you can get your year-end books to your tax accountant ahead of everyone else!
5. Consider capital asset purchases.
Depreciation rules change often, but large purchases can oftentimes be written off fully in a year. We’re in the trash business and we have to make frequent trash truck purchases. At this point in the year, we consider when we’ll need our next truck, if we need the write off this year or whether we think it would be better to wait and capture the expense next year, depending on what net income and cash looks like right now. Considering supply chain issues, now’s the time to make those calls if you intend to put the asset into use before year-end. You can learn more about capital asset depreciation rules for 2021 here
6. Review your Accounts Receivable.
Having an intentional review of your A/R will potentially help you identify invoices you still need to send or payments that are older than you thought and you need to chase down. If there is an amount due that you know will never be collected, you can write it off as bad debt and get a tax benefit. Also, make sure the figure reported on your A/R report matches the accounts receivable balance on your balance sheet. If you don’t do accrual accounting, still do a review to see if you’ve billed or been paid for the work you’ve completed this year.
7. Review your Accounts Payable.
Most of us pay taxes on a cash basis, meaning if we pay a bill this year, it gets counted as a deduction. Do you have any bills not technically due until January but that you want to pay this year for the current year tax benefit?
8. Quarterly taxes and reports are also due.
Even though annual returns and taxes are due at the close of the year, you still have to complete your quarter 4 filings. Don’t forget your 941 and RT-6 are due by Jan. 31.
9. Make final payroll adjustments and corrections.
Mistakes happen, but your life is much easier when payroll mistakes are corrected in the same year as the mistake. One year I accidentally set up our IRA as a post-tax deduction instead of pre-tax. Whew, I caught it before year-end and was able to make the necessary adjustments to get the taxes corrected so the W2 was accurate. Employees don’t take too well to you issuing them a revised W2…after they’ve filed their tax return!
10. Budget for next year!
It’s hard to think about the future when this time of the year is otherwise so busy. But going into the new year with clear goals and an organized mind and team will set you up for success. Use this year’s activities and data to help guide you and also get input from others on your team if you’re not a sole proprietorship. Project your financial map for next year. Sometimes it’s easier if you’re new at this to start looking at annual numbers and then dividing by 12 for a monthly view. From there, you can tailor each month based on peculiarities of certain months. For example, if you do bi-weekly payroll twice a year you have three payrolls a month instead of two. Ouch – go ahead and figure out when that will happen so you can be prepared and not be scrambling for the cash. A google search will result in countless resources on how to build a budget, but here is a sensible 10 step approach to a well thought out budget:
And I’ll close with this disclaimer. I may be a CPA, but I took two tax classes over my 6 year college studies and I’m far from an expert. The best tax advice I can give is to get yourself a good tax CPA! My husband struggles with this and wonders why we pay our tax CPA a few thousand dollars each year if this is what I “went to school for.” My response- would you want a criminal attorney drafting your will and probate? No. And you don’t want a financial accountant filing taxes. Your best tax advice comes from a CPA who does taxes for a living because they are on top of all latest and greatest tax laws…which if you’ve noticed change frequently.
And with that, I’m off to do my own year-end prep so my financials are in tip top shape for a smooth tax preparation by our CPA
(because the cleaner your books are, the cheaper the tax preparation bill will be!). Talk soon.
Crystal Boyles is the owner of Adams Sanitation. She is a Certified Public Accountant (CPA) by trade and lives in Holt with her husband, two children and Teddy – their dog!
It’s the Christmas season and we want to give you plenty of heads up about our schedule between Christmas Eve and New Year’s Day – as there are going to be a lot of changes for that week. Thank you for understanding and allowing us to spend a little bit of time with our families to celebrate the Christmas season!