Although December is best-known for holiday celebrations, it’s also time to think of any last-minute steps you can take as a business owner to lower your tax liability, prepare for upcoming filing deadlines, and set your business up for even greater success in the coming year.
Now is the time to review your P&L statement to inform any last-minute purchases. If you have the cash flow, consider making major purchases before December 31 that you can write off as a tax deduction for the current year.
TBA Tip: Don’t wait until December 31 to make your purchase! You want to make sure to leave a gap so year-end purchases process on your credit card or bank account with a 2020 date.
Donations or charitable gifts must be made by December 31 in order for them to be deductible in the current year. Always make sure to get a written acknowledgment or a receipt for any financial contributions.
This year, the IRS has a special new Covid-related provision that will allow more people to deduct up to $300 in donations to qualifying charities, even if you don’t itemize. You can read more about this on the IRS website.
TBA Tip: Tax Exempt Organization Search (TEOS) on IRS.gov allows users to search for tax-exempt charities. Taxpayers can use this tool to determine if donations they make to an organization are tax-deductible charitable contributions.
Confirm Your W9s
Confirm you have an IRS form W9 for any service provider you paid more than $600 in the calendar year 2020. In the event of an audit, the burden of proof is on you as the business owner. While this doesn’t necessarily have to be done by December 31, remember that the deadline to send 1099s to contractors is just around the corner and you don’t want to be penalized for missing the January 31 deadline.
TBA Tip: Here’s the online e-filing service we use for all of our accounting clients.
Consider Opening an HSA Account
If you’re self-employed and pay for your own health insurance, check to see if your health plan is eligible for a Health Savings Account (HSA). You can deduct contributions to your HSA and then use the money to pay for health-related expenses that aren’t covered by insurance. If you set your HSA and contribute by December 31, you can make a full year’s worth of deductible HSA contributions for 2020.
TBA Tip: Check HSAcenter.com for the annual contribution limits.
Check HRA Eligibility
If you have more than $5,000 a year of medical bills and/or health insurance premiums, you may be eligible for a Health Reimbursement Arrangement (HRA), which is different than a Health Savings Account (HSA). An HRA is an IRS-approved health benefit used to reimburse employees for out-of-pocket medical expenses and health insurance premiums. Many business owners also qualify to participate in HRAs.
TBA Tip: Contact BASE to see if you’re eligible to set up an HRA and let them know Michelle Mangen referred you.
End-of-Year Business Best Practices
Make Backups of All The Things!
This is especially true for important documents like bank statements and canceled checks. If you don’t already have PDF copies for the past year, download them ASAP and make sure they’re backed up on a secure OFFSITE server.
TBA Tip: Backblaze is a solid option that offers secure cloud backup and file storage.
Record Bank Balances & Mileage
Record your ending bank balance for 2020, as well as your mileage for the end of the year. If you’re not currently using a tool to track mileage, consider using a handy app like MileIQ to make it even easier next year! This is one of my personal favorites because it really does make tracking mileage a breeze.
TBA Tip: Take a photo of your odometer too (even if you use an app like MileIQ).
Prep for Payroll
TBA Tip: Make your life even easier by downloading our free setup-checklist.
Don’t Forget to Celebrate!
2020 has been a tough year, so it is especially important to take time to celebrate your business successes. Look for the wins, share them with your team, and take time to give yourself a well-deserved pat on the back.
This post is for educational purposes only. It does not constitute accounting, financial, legal, or tax advice. Please consult with your advisor(s) regarding your personal accounting, financial, legal, and tax matters. If you would like professional assistance, please drop us a line on our Contact page.