P&L Business Solutions January 2024 Newsletter

As everyone is getting back into the routine after the holidays, we want to make sure everyone is on track for having a smooth tax prep process for your business. 

Some Items to Take Note Of

1.Uncategorized Transactions – If you still have uncategorized transactions for 2023 in your Books, make it a priority to have these resolved and categorized right away. Handing over financials to your CPA with uncategorized transactions will cause delays to the process, and many times, increases the overall cost of tax preparation.

2.Cash vs. Accrual Tax Reporting –

• Cash – Most small businesses, and even some businesses with millions of dollars in annual revenue, use the Cash Basis Method for filing their business tax returns and for managing their business. It is the simplest Accounting Method to use, and for most small businesses, this method tells an accurate story of how a business is doing during a given time period. Cash accounting takes the least amount of resources to implement. At a high level, it records the flow of funds that go in and out of the checking account and any other checking, savings, or credit card accounts to make sure each transaction flows through the Books in the accounting software using the actual transaction dates of all business income and expenses.
• Accrual – If a business has long cycle times between when payments are received vs. when the actual work is being done or the product or service is being provided, it may make more sense to use what is called the Accrual Basis Method of Accounting. Accrual Accounting provides more insight for managing cash flow, but it also takes more work and effort to manage on an ongoing basis. Therefore, businesses that use the Accrual Method must have frequent communication between the Business Owners/Managers and the Bookkeeping/Accounting Team to implement accrual accounting successfully.
• Software – Even though most modern accounting software has the option to run the financials based on a Cash or Accrual basis with the click of a button, it still may not give you an true picture of what is going on in the business if you don’t have the correct asset, liability, and equity accounts set up in the system or if they are not accurately maintained each month.
• Should Your Business Switch to an Accrual Basis? – Businesses that have high profits one year and then significant drops or losses the next year may be a candidate for switching to the Accrual Method. However, keep in mind that the move from Cash to Accrual Accounting could generate an unforeseen taxable event in the year it is completed. Additionally, the IRS does not let you go back and forth between accounting methods, so it is imperative that the CPA, Bookkeeper/Accountant, and the Business Owner are all part of the discussion regarding changes in the accounting methodology used in the business.

Timeline Dates to Highlight and Remember 

January 31 – 1099 Submittals:

 Since an IRS-specific form should be used, most tax preparers include 1099 Submittals as part of their service. Many business owners do not realize that they can now submit 1099s directly from their QuickBooks Online Account (Essentials, Plus, and Advanced Subscription Levels) for a small fee. If you have a QuickBooks Online Certified Bookkeeper, they can easily send these forms out for you through QuickBooks Online.

The IRS is looking to receive 1099 reporting information for all transactions over $600 for all “unincorporated” business, which would include businesses that are LLCs. Additionally, a 1099 is required for payments made to an attorney regardless of incorporation status.   

The best practice is to collect the IRS W-9 Form as part of the contract finalization, and, most certainly, prior to paying any funds to the Subcontractor. The W-9 Form will then be used to enter the information that is required on the 1099 Form. 

The potentially confusing thing is that not all Businesses Owners have the same definition of what an Independent Subcontractor is. The IRS defines a Subcontractor as a person or small business entity that is hired to provide or perform services that you do not have employees to provide or perform for you. Keep in mind, that Subcontractors must use their own equipment and should be responsible to perform the job you have asked them to without your intervention or micro-management. If you want to be able to plan someone’s schedule and give them direct management over the project, you must make them employees of your business. 

January  – Employee W-2s, Annual Employer Payroll Filings:     

Your payroll company will typically take care of sending out all the W-2’s to employees for their statement of wages that they will need to include on their personal tax returns. If the Payroll Company is filing your monthly and quarterly filings, they will most likely be filing these as well.

Various Dates for Federal IRS Tax Filings (See Table Below): 

April 15 – Viriginia Form 502 (Pass-Through Entity): 

For some businesses in Virginia, you are required to submit Form 502. For businesses in other states, there might be other required tax filings. Check your state’s website for more information. 

Please reach out to us if you would like more information on any of these topics. You can call us at (888) 20-BOOKS or (804) 561-1600. Our email address is AGarcia@PandLBusiness.com.

P&L Business Solutions

www.PandLBusiness.com

(888) 20-BOOKS