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January Accounting To-Do List for Small Businesses

Staying ahead of essential accounting and bookkeeping tasks is a never-ending process for a small business owner. As each year comes to an end and the new year begins, it is a good opportunity to evaluate the financial details for your company. Not only do you need to look at the numbers that will affect your success going forward, but there are essential tax deadlines that need to be met in the next few weeks.

January Tax Deadlines for Small Businesses

Every year, businesses have a few to-do items that need to be done by the end of January. These forms need to be completed and filed or as required by the IRS:

  • W2 Forms for Employees: When you have employees on payroll, you are legally required to provide every person with copies of form W2 (Wage and Tax Statement). Not only does this form need to reflect wages that were paid in 2019, but it should also show the total value of special gifts or accrued bonuses.
  • W3 Form for the Social Security Administration: Additionally, a form W3 needs to be submitted to the Social Security Administration, outlining the wages, tips, and other compensation employees received. The data on Form W3 should match up to the total numbers on the distributed W2 Forms.
  • Form 1099 Misc Income: If you paid any contract workers, freelancers, or service providers more than $599 in 2019, then they need to be provided with a copy of Form 1099 Miscellaneous Income.
  • Form 1096 Summary: Additionally, the information on distributed 1099 Misc Forms needs to be summarized on Form 1096 (Annual Summary and Transmittal of U.S. Information Returns). This document is filed with the IRS to report non-employee compensation. This form isn’t due until February 28. But it’s worth mentioning here with the January deadlines since it relates to the 1099 forms that are distributed. Many businesses find that it is convenient to complete this form and send it at the same time as the 1099 Misc documents.

Forms W2 and W3

When payments and wages total $600 or more in a calendar year, then you are required to provide a Form W2 or 1099 Misc to the employee or contractor. Even if the individual is no longer working for your company, it is still necessary to send the form with applicable income information.

The worker classification (employee or contractor) depends on the relationship they had with the company. For example, if the person was on payroll and your business deducted income taxes, Medicare, FICA, or Social Security taxes, then these numbers need to be reflected on Form W2 and provided to the individual by January 31st. Multiple copies of Form W2 should be created:

  • Copy A is sent to the IRS
  • Copies B & C are provided to the employee (or former employee)

You also must keep a copy for your business records. This information is summarized on Form W3 and provided to the IRS. Form W3 lists the number of W2s that were distributed, as well as total numbers paid and withheld during the calendar year. Form W3 is submitted along with the copies of W2s.

Form 1099 MISC

Non-employees receive payments, but you are not required to withhold taxes. The individual or service provider holds the responsibility of calculating and paying applicable taxes, including estimated tax payments, Social security, Medicare, and FICA. As a business owner, you are required to report taxable income on this document, then the totals from all W3s need to be summarized in your 1096 Summary submission.

Each employer is responsible for managing the classification of employee vs. contractor. For example, employees and contractors can provide similar work – but there are clear legal differences that classify the relationship with the worker. Some companies choose to maintain contractor relationships instead of hiring employees. As a result, the employer doesn’t have the overhead costs of withholding calculations, employee taxes, and more.

If you choose to pay a provider as a contractor, certain qualifications must be met:

  • You don’t control what the worker does or how the job gets done
  • Business aspects of the position are not managed by the company, such as supplies, equipment, expense reimbursement, dedicated office space, etc.
  • Benefits are not provided, including vacation pay, insurance benefits, or retirement
  • This relationship may be a short-term agreement, based on the contract determined for the work that needs to be completed

For more information about employee vs. contractor classifications and payments, you can view the distinguishing details on the IRS website.

Other Upcoming Deadlines for Small Businesses

  • Estimated Tax Payment: The schedule for estimated tax payments (1040ES) falls with one of the quarterly payment deadlines in January. By January 15th, you should have paid the amount that your accountant listed on the payment voucher. This estimated payment is applied to your overall tax calculations, with all of the details of the year being calculated before the tax date coming up on April 15th.
  • Employment Taxes: Review the due dates for employment taxes this year. Make sure that your calendar is marked so that you don’t overlook any of these important deadlines. Follow the applicable deposit due dates to ensure you are keeping up with the requirements set by the IRS. Your schedule is determined by the tax liability reported on Form 941. Keep in mind that the schedules for depositing taxes and reporting taxes are different. Your small business accountant can provide guidelines and support to determine the right deposit and reporting schedules based on the unique needs of your company.

Why Payroll Compliance Matters

Why does it matter if you submit all of these payment forms on time? It’s easy for the paperwork to get lost in the shuffle because other business responsibilities take priority. Keep in mind that the IRS has strict guidelines for deadlines and payment structures, and every business owner needs to maintain the responsibility of abiding by these guidelines.

For example, failing to distribute W2 Forms by January 31st means that you could be facing fees and penalties from the IRS. It is considered a federal violation to miss these deadlines. Additionally, you need to consider how the failure to distribute the forms will impact employees. Each person needs their income details to complete their tax filing for the year. The W2 form is one document that will be required when the person is completing and submitting their annual income tax forms.

In order for the tax forms to be completed “on-time,” they need to be delivered or postmarked by the applicable due date. For example, if the tax forms are due by January 31st, then the postmark date should be on or before January 31st.

Don’t Wait Until the Last Minute

Just because a deadline is a few weeks away, doesn’t mean that you should wait until the last minute to complete the necessary accounting preparations. Being proactive gives you the advantage of completing these documents with plenty of time to spare. Not only do you have sufficient time to ensure the accuracy of the calculations, but you also have a buffer in case something goes wrong and you need a bit of time to correct the issues.

Additionally, consider the benefit you can enjoy due to lower stress levels. It can be a nail-biting experience if you wait until the last day to complete the necessary tax forms. It’s not worth the stress to delay these to-do list items until the last minute.

Finally, preparing ahead of time gives you the option to hire an accounting team to assist with the calculations and preparation of all tax forms. As a busy business owner, you are already carrying a lot of responsibility to oversee the day-to-day functions of the company. Let a professional team take care of the paperwork so that you can keep your focus on other tasks that matter. January doesn’t have to be a busy month when you engage the services of an experienced outsourced accounting team for assistance.

Looking Ahead for the Rest of the Year

Once these deadlines are met, and the tax forms are done, don’t be fooled into thinking that you are off the hook for the rest of the year. Financial planning and tax strategy should be an ongoing process to optimize your systems, increase profits, and minimize overhead expenses. One of the best investments you can make for your company is to leverage the services offered through an experienced small business accountant.

Our team is here to assist with report generation, data analysis, and other financial strategies that can improve your results in 2020. Whether you need assistance with the preparation and filing of W2 and 1099 Misc forms, or you are looking for a long-term accounting strategy, we invite you to call us to learn more about available services.

At Easier Accounting, our specialty is small business accounting. We understand the unique challenges that need to be addressed for startups and small businesses in a variety of industries. We’d love to assist with your financial system this year. For more information, you can contact us for a consultation: (888) 620-0770.