Small Business Tax and Accounting Considerations for January

It seems like 2010 just started but we are back at the start of another year.  As a business owner, there are a lot of things to take care of at the end of one year and the start of a new one..  For end of the year 2010 activities you need to make sure your books are closed, i's dotted, and t's crossed.  Many of you took advantage of tax planning to minimize your 2010 taxes.  At this point, there is not much more that can be done to influence 2010 (other than a few things such as potentially making a 2010 retirement contribution).  What you have is what you have.  Nevertheless, you should start to think early about pulling together your information for your tax return filings.  Remember that entities treated as S corporations and C corporations by the IRS are due by March 15th and LLCs and sole proprietorships are due by April 15th.  Filing an extension can give you an additional 6 months but an extension is an extension to file and not an extension to pay (so at a minimum you need to have some idea of what your tax liability is when you file your extension).

There are some more pressing items that will require your more immediate attention.  The final due date for individual 2010 estimated tax payments is January 17th, 2011.  As a self-employed business owner you should consider making estimated payments.  It is a good idea to have a rough estimate as to where your 2010 tax liability stands as underpayment can result in late payment penalties and interest.  It is possible to have a rough tax return done (but not filed) by the January 17th estimated payment deadline so that you have a pretty good idea of what your tax liability will be.
 
There are several items that revolve around a January 31st deadline.  The big ones that most people know about are the mailing of W-2s and 1099-MISC forms to employees and contractors.  The problem that many people encounter is that they have not had contractors complete W-9 forms and do not have the required tax identification numbers to include on the 1099- MISC forms.  If the contractor is no longer providing services to your business you are going to have a tough time getting them to provide you with their tax id number.  This can cause you to be late in issuing your 1099-MISC forms if you don't attack that problem early on. 

One often overlooked form is property listing that needs to be filed with your NC county by January 31st.  This form requires you to list all your equipment, inventory, etc so that the county can assess property tax.  The tax typically is not that bad.  In this past year I have come across several people that did not complete such a form.  When that happens, the county typically assesses your property at an arbitrary amount that is typically much higher than the actual property value.  You then have to go through the process of fighting and appealing the valuation.  My advice is not to skip this step and to make sure that you have it taken care of in January.  Another form that has received enforcement attention in the past year is the annual filing with the NC Secretary of the State.  These typically need to be filed by 4/15 for any business other than a sole proprietorship.

If you have employees you need to remember that the 4th quarter payroll tax filings are due on January 15th.  Finally, form 940, federal unemployment tax, is another form that needs to be filed with the IRS by January 31st if you had any employees during the year.  As you can see there are numerous forms and items that need to be taken care of in January.  I can't cover all forms and situations in a general email, so if you have specific questions about your situation feel free to ask me.  It is much easier to do things correctly upfront rather than clean up a large mess after the fact.

S Corporation Status

If the profitability of your business has increased or you expect it to increase in 2011 then you may want to consider making an S corporation election in 2011.  Rather than get into a lengthy explanation of S corporations I will summarize the tax benefits.  If you think it could hep you contact me and we can discuss your situation in more detail.  In short, an S corporation allows you to avoid the 15.3% self-employment tax (13.3% for 2011) on some of your income.  Typically, if you are netting $40,000 or $50,000 from your business then an S corporation election will make sense.  Below that amount, the administrative costs often outweigh the tax benefits.  This election must be made made within 2 months and 15 days of starting your business or by March 15th of a given tax year.  Once made, the election does not need to be made again.