Imagine it’s January or February 2022. You are preparing for the upcoming tax deadlines, but as you begin to pull everything together, you realize you are missing crucial elements. Maybe you have important questions only your tax advisor can answer, but now they’re in the thick of tax season and are nearly unreachable. Maybe you need to get 1099 forms to your vendors, but you aren’t even sure which vendors should receive one. Or maybe you recently discovered you were charging the wrong sales tax rate for part of the year or that your per diem and mileage rates were out of date.
Are you feeling the stress of this hypothetical scenario? Or is this a little less hypothetical than you’d care to admit, and a little too close to reality?
Benjamin Franklin once famously said, “An ounce of prevention is worth a pound of cure,” and it could not be more true in business. If you wait until the new year to get your ducks in a row, you’re going to be too late. By taking the following steps now, however, you can avoid the scramble, ease the stress, and be better prepared for tax season.
5 Steps to Take NOW to Prepare for Tax Season
Tax season is a crazy time, but there are things you can do now to make it easier and smoother for everyone. Prevent those stressful last-minute scrambles by taking the following steps to line up your year-end duckies.
1. Get your questions answered
One of the most important steps to take now, before the new year begins, is to get answers from your tax advisor before their schedule gets too swamped. If you use Quickbooks, review the items in your “Ask My Accountant” expense line. Prepare a list of questions, then get the guidance and direction you need before the end of the year.
2. Request a W-9 from your new vendors
You will need to issue a Form 1099 to new vendors you’ve paid over $600 during the year (among other requirements), but first you need to know which vendors need one. To prevent a mad scramble later, request a W-9 form from all your new 2021 vendors now, so you have them before January. Make sure the forms include a proper address. Then, update your accounting system to reflect all the information on the W-9.
3. Review and update your sales tax information
If you have to collect and remit sales tax, check to see if rates will change effective January first in the various jurisdictions you file in. You may not know this until after the November election cycle, as there may be new laws passed affecting taxes. Once you have this information, update your accounting programs, as needed (using the correct effective date), or make a note to update them on January 1.
4. Check for cost of living adjustments
You should also check for cost of living adjustments related to per diem and mileage rates. You can find information for the new year on the irs.gov website (the notices usually happen in December). Update the information in your system and on the templates your employees use. As your employees log their numbers, make sure it is clear whether the mileage or per diem was incurred in December or January, and use the proper rates for each.
5. Confirm employee addresses
Finally, confirm the addresses of all current and former employees so you know where to send their W-2 forms. A lot of people have moved and/or changed jobs in the last year, and you don’t want to be scrambling at the last minute to track them down. Also, make sure your email addresses in your payroll system are correct, as some employees may have used outdated work email addresses for communication.
There’s much to be done to prepare your business for tax season, so don’t wait until the new year to do it all! Save yourself valuable time and stress by taking these steps now to prepare. Your ounce of prevention will be worth a pound of cure come tax time.
Do you have other year-end questions? Hop on a quick call with me. I’d love to help!