23 Nov Planning for Year-End: 5 Steps to Take Before the Ball Drops
This year may have seemed longer than most, but 2020 is finally coming to a close—and so is the amount of time you have left to make sure your small or midsize company’s finances and HR needs are in order. As year-end planning gets underway, here are some of the areas that need your attention as the final weeks wind down—so that you’re ready for next year.
Prepare for 1099 processing. We recommend that controllers and finance leaders take a look to see if they have updated W-9 forms on vendors used this year. As usual, vendors or non-employees you’ve paid more than $600 for services should receive a Form 1099 reporting the total dollar amount they were paid, unless they are taxed as a corporation.
New for this year is the 1099-NEC form, which strips Box 7 off the old 1099-MISC form. Non-employees (or independent contractors) will need to receive a 1099-NEC from you by the end of January, and you’ll need to send a 1099-MISC form to other vendors (such as those you pay rent and attorney fees) by March if you’re filing electronically.
Check in with your tax accountant. While you still have time to make prudent cash moves before year’s end, you’ll want to see what your organization’s CPA firm or tax advisor has to say about potential tax savings. Depending on your situation, you may find it advantageous to move forward with retirement fund contributions, bonus payouts, or tax credits prior to year-end.
For example, if you’re looking for a way to reduce your state taxable income, your tax advisor may suggest donating to special causes such as the Georgia HEART Hospital Program. As part of this special program, companies that contribute to helping rural and regional hospitals through the program receive a 100% corresponding state income tax credit or a tax credit of up to $10,000 and can deduct the contribution as an expense on their federal income taxes.
Keep in mind that you’ll need to incorporate any recent accounting guidance surrounding the deductibility of expenses paid for with PPP funds.
Forecast your financial situation. Some companies are finding that their forecasting capabilities are clouded by uncertainty due to the pandemic and recent elections.
However, looking forward will help your company make reasonable decisions now about any items left in the 2020 budget, such as bonuses and marketing investments. For a look farther out, give thought to the natural growth of the company and the stage it is in now. What are the strategic goals for the next two to five years, and how does 2021 fit into achieving your long-term goals?
Conduct a cash flow analysis. What are your plans for revenue and the cost of running your business next year, and how will your cash flow be affected? Do you have cash available for investing, or is it time for cost-cutting based on that information?
Consider compensation. Depending on your company schedule, you may be on the brink of the performance review season. Do you have a good process in place for reviewing people, assessing performance, and distributing bonuses equitably? Will you be making compensation increases? Issuing bonuses? And what’s the bonus plan for next year? Now is the time to think through your compensation plans.
If your company reorganized this year, this process may be much different than previous years—or perhaps you need an entirely new process because of new supervisor roles and responsibilities, and the need to conduct reviews virtually.
We hope these simple reminders help you get organized for year-end and assess any needed assistance. When time seems to accelerate at the end of the year and when the typical ways of doing things have changed, you need strategic finance, accounting, and HR expertise to ensure that you’re planning ahead and taking care of things on time. Our experts can help you through it, so you start off on the right foot in the new year.