Year-end reporting can be a stress-free and more accurate process when preparation happens early and consistently throughout the year.
Without ample and proper preparation, year-end reporting can feel like a last-minute cram session before college exams. But financial leaders don't need to go back to school to better prepare their organizations for inarguably one of the most crucial processes an organization annually faces.
Mistakes can happen to the best of us, of course. Compliance Week notes how a major banking institution famously made a $4 billion accounting error in calculating available capital. Government bodies that collect taxes can also err. The city of Manassas, Virginia, acknowledged it had overcharged local organizations on their taxes and it now needs to raise $850,000 for restitution, according to Inside NoVA.
Here are six tips your organization can follow to help make year-end reporting a simple process that catches errors, rather than compounding them, and ensures your tax season is one to be held up as an example of astute planning and due diligence.
1. Prepare Early and Stay in Frequent Contact With Accounting
Why wait? Instead of considering year-end reporting as annual event that steals resources and attention from other endeavors, treat it as an iterative process that can be incorporated into other daily tasks. Prepare necessary reports and analysis ahead of time, and stay in constant contact with accounting for what needs to be done to ensure there aren't any last-minute scrambles.
2. Be Vigilant With Records
Accounts and records should be updated so they can reconcile at tax time. Sloppy record keeping can lead to a lack of detail and supporting documentation. Avoid a big mess by consistently auditing data. For instance, run payroll reports on the organization and employee level every week, if possible, to review information.
3. Assign Year-Round Tasks
Break up the work into small tasks that can be tackled all year. Make sure all team members have assigned duties and make one person or several people have primary responsibilities to stay on track. For example, each month have a small team review accounts payable to ensure those records are current and that reconciliation can be performed. Cross-train team members to brace for inevitable vacations, sick days and resignations.
4. Know the Law
Not to point out the obvious, but it can be all too easy to get lost in meeting the expectations of the IRS. Don't forget about your many other tax obligations and their respective deadlines: local and state, payroll, property, contractors and many others. Also, federal and state tax legislation, rates and forms change constantly. It's good to be aware of any changes so you can prepare for new types of deductions and change course if any are eliminated. Download the latest versions of tax forms so you won't be surprised.
5. Verify the Status of Employees and Contractors
It's important to know and double-check the tax filing classifications of everyone on payroll, from W2 employees to 1099 contractors. Make sure they receive the proper paperwork upon their entry into the payroll system. Also, be aware of state-specific filing rules and tax calculations for out-of-state workers; this can get tricky. It also helps to prepare for 1099 reporting by having W9 forms ready prior to the end of the year. And don't lose sight of deadlines; the late submission of your and your employee's share of payroll taxes can trigger a 15 percent failure-to-deposit IRS penalty.
6. Seek Professional Help
Staying compliant with payroll and tax obligations can be challenging even with the best preparation. An HCM provider can stay on top of your tax and payroll obligations and minimize compliance risk. Digital records are always within reach and deadlines will be met with ease.
Thorough, incremental steps taken during the year can make tax season not only less stressful but it can also successfully reconcile what transpired and what needs to be reported.