Year-end is coming up for many businesses, and it’d be nice to know what your final revenue and profit numbers will be for the year. Before we can calculate these key numbers, there are year-end adjustments that may need to be made to your books that will change the numbers. Here are seven common ones:
It’s great to give bonuses to employees at year-end, but it’s not so great to forget about the tax part of it. Bonus checks should always be run through payroll, but often are not, which requires an adjustment after the fact. If you generally issue bonus checks after year-end, consider making the payments to your employees in December, since the Busch tax cuts are set to expire at the end of 2012.
Retirement Plan Contributions
If cash is available at year-end, it’s a great idea to maximize the allowable deductions for the retirement plan you qualify for. One example is a SEP IRA. You can deduct up to 25% of your or your employee’s salary (up to $50,000 deduction maximum per employee for 2012), but please check with us for numerous exceptions and rules.
If you are both the owner and an employee of your company and have not made enough tax payments throughout the year to account for all that money you’ve earned in 2012, you can adjust your last few paychecks to withhold the amount you need. Sometimes, this also reduces or eliminates the penalty for underpayment of estimated taxes. To find out more, please give us a call so we can review your situation with you.
If you have assets that will last longer than one year, such as furniture, computer equipment or automobiles, an adjustment may need to be made to reduce the value of those assets. This adjustment will reduce your profit and will also reduce your tax bill.
If you have a loan of any type, the payment consists of both principal and interest. Each time you make a payment, the principal and interest amounts can vary. At the beginning of the loan, you pay more interest and less principal. At the end of a loan, it’s reversed. Each payment is different, and if they haven’t been recorded correctly each month, it’s time to make the adjustment so that the loan balance is correct and you get the proper deduction of the interest on your tax return.
New Acquisitions or Obligations
If you’ve made a significant acquisition such as real estate, buildings, large equipment, or another company, and somehow the transaction did not get properly recorded on your books, then now is the time. Similarly, if you’ve taken on new debt, the new liability needs to recorded on your books.
It’s easy to overlook transactions that do not require a cash outlay, but these need to be recorded as well. For example, if you performed consulting services in exchange for a spa gift certificate, this transaction should be reflected in the proper revenue and expense accounts.
Once your books are adjusted for all of these changes, you’ll have all the information you need to find out how your business performed for 2012. You can then use your 2012 revenue and profit numbers to set new goals for 2013.
We are here to help answer any questions you have and to help you plan for this year and beyond. Call today for a free consultation.