Your Year-End Tax Planning Checklist
The onset of a new year signals the start of year-end tax planning for small business owners. The time you invest in these tasks during the last several weeks of the year may help you take advantage of last-minute opportunities to lower your 2017 tax liability, and may ensure a smoother tax filing season. Here are some tips and important deadlines to help simplify your year-end tax planning to-do list.
Tasks for November 2017
- Ensure W-2 forms are current. If you purchase hard copies of your W-2 forms from a third-party supplier, confirm that you have updated forms.
- Confirm payroll bank reconciliations. Identify any 2017 checks that may remain outstanding.
- Make a list of special wage payments. Special wages like employee parking, athletic club memberships, employee stock options, disability pay (in certain states), relocation assistance, or employee loans or scholarships may require you as the employer to provide additional information based on tax reporting requirements. Once you've determined which special wage payments apply to your business, review accounts payable and general ledger records to ensure your records are accurate.
- Confirm whether employees will receive a year-end bonus and how you'll issue them. If employees will receive additional compensation as a holiday bonus, it is subject to applicable payroll taxes and should be reported on a W-2. You'll also need to include holiday bonuses on your income statement to claim the additional pay, under most circumstances, as tax-deductible. If you'll pay employees a flat sum for a bonus, you can gross-up the amount when you input it into payroll so employees receive the funds less applicable taxes.
Want to take a tax deduction from employee holiday bonuses, but don’t want to pay associated payroll taxes? Consider issuing additional "holiday compensation" in the form of a profit-sharing bonus through your business 401(k) profit-sharing plan. Employees won't get a check with their holiday bonus, but they will get additional non-taxable compensation (at least until they access funds from the retirement plan).
Tasks for December 2017
- Ensure that employee W-4 information is current. If employees have had a life change over the course of the year (such as getting married or divorced, or having a child), remind them to submit a new Form W-4 if the event will impact their withholding allowances for the next year.
- Review compensation data. It may not be time for employee annual reviews, merit increases, or cost of living adjustments just yet, but adding a compensatory review to your year-end tax planning processes can help ensure your business offers competitive salaries and rates.
- December 15, 2017: If your business is classified as a C corporation, your fourth quarter 2017 estimated tax payments are due by this date. IRS guidance states that electronic payments must be scheduled no later than 8 p.m. on December 14 to process on time.
- December 29, 2017: If you have items on your year-end adjustment list, confirm which should be posted to taxable wages on more frequent basis as you move into the new tax year. This may help you avoid any late-deposit penalties for posting taxable fringes to your payroll in 2018.
It’s also important to confirm that any third-party tax service provider you use has the returns and information statements that apply to your business. The better prepared you and your provider are before the new year begins, the smoother the tax filing process can be.