As 2023 winds down, here are some ideas to help you prepare for filing your upcoming tax return:
- Informational returns. Identify all vendors who require a 1099-MISC and a 1099-NEC. Obtain tax identification numbers (TINs) for each of these vendors if you have not already done so.
- Shifting income and expenses. Consider accelerating income, or delay income producing activities, based on profit projections.
- Be prepared to receive a Form 1099-K. You may receive a Form 1099-K from each payment processor from whom you receive $600 or more in payments. In addition to credit card companies and banks, payment processors can include Amazon, Etsy, PayPal, Venmo and Apple Pay. You’ll need to include the 1099-K on your tax return.
- Categorize income and expenses. The best way to prepare for receiving a 1099-K is to organize your records by major categories of income, expenses and fixed asset purchases. If your accounting records are accurate, then any tax form, including a 1099-K, should be easy to tie out to your books.
- Separation of expenses. Review business accounts to ensure personal expenses are not present. Reimburse the business for any expenses discovered during this review.
- Create expense reports. Having expense reports with supporting invoices and business credit card statements with corresponding invoices will help substantiate your deductions in the event of an audit.
- Fixed asset planning. Section 179 or bonus depreciation expensing versus traditional depreciation is a great planning tool. If using Section 179, the qualified assets must be placed in service prior to year-end.
- Leveraging business meals. Business meals with clients or customers are 50% deductible. Retain the necessary receipts and documentation that note when the meal took place, who attended and the business purpose on each receipt.
- Charitable opportunities. Consider any last-minute deductible charitable giving including long-term capital gain stocks.
- Cell phone record review. Review your telephone records for qualified business use. While expensing a single landline out of a home office can be difficult to deduct, cell phone use can be documented and deducted for business purposes.
- Inventory review. Review your inventory for proper counts and remove obsolete or worthless products. Keep track of the obsolete and worthless amounts for a potential deduction.
- Review your receivables. Focus on collection activities and review your uncollectible accounts for possible write-offs.
- Review your estimated tax payments. Recap your year-to-date estimated tax payments and compare them to your forecast of full year earnings. Then make your 2023 4th quarter estimated tax payment by January 16, 2024.
