Now is the time of year to be thinking about wrapping things up for 2020 and looking ahead to preparing for 2021. As with everything else about 2020, this end-of-the-year advice will look a little different.
If you have a Payroll Protection Program (PPP) loan as part of the CARES act, be sure to take that into consideration for end-of-the-year planning. There had been some discussion about Congress allowing automatic PPP loan forgiveness if the amount borrowed is under $150,000, but that proposal appears to be DOA at this point. If you use your PPP loan for the appropriate expenses it will still be forgiven, but you will need to demonstrate you used the money appropriately. So keep those receipts!
Also, keep in mind that expenses paid with PPP loans can NOT be deducted from your federal taxes. Let me repeat that: you can’t deduct the businesses expenses you paid with PPP loans. Congress may change this rule, but you should assume that you’ll be paying taxes on these expenses. This is very easy to mess up, so I highly recommend that you have a CPA look at your books and give you guidance.
Reconcile Your Books
Now is the time to update and reconcile your books. This is the task you should undertake now, before anything else. It’s likely to take the longest and can often create other tasks. If you’re not up for tackling the books all at once, I recommend doing a little every day. That way the task isn’t quite as intimidating, and you’ll have a sense of progress. If you’re really having trouble facing it, you can consider getting professional help (of the financial—not the psychological—sort).
W9s for Vendors
If you’re like most small businesses, you rely on contractors to keep your business going. And you need to create 1099s for a lot of those contractors. Which means you need W9s for them. Make sure you have all those W9s for everyone—even the contractors you used only once. If you don’t have all that information it will create bigger headaches for you in 2021, so now is the time to tackle it.
Give Yourself Time
Before the end of the year, you will need to make decisions that impact your business’s 2020 taxes, such as investments or purchases of equipment. But it’s really hard to make those decisions without a clear picture of your financial situation. You also don’t want that picture of your financial situation to come into focus on December 27th. Update and reconcile your books now so you understand your 2020 financial situation and can make unhurried end-of-year decisions. I don’t know about you, but for me impulsive, last-minute decisions aren’t usually my best ones.
Just as 2020 was a year like no other, planning for 2021 will also be a little different. Stay tuned for our December blog where we’ll discuss ways to think about preparing for next year.
Need some help with end-of-year reconciliation and planning for next year? Contact Office Accomplice!