4 Steps to Get Your Books Ready for 2021

It’s officially time to close the books on 2020 and get ready for 2021. If you’ve been doing the bookkeeping for your own business for a few years, this is probably routine for you by now, but since 2020 has been anything but routine, there are some special considerations this year you might not have had to deal with in previous years. So, before you pack up 2020, make sure your books aren’t missing any of the important changes from this year.

Closing Your Books

The first thing you need to do is reconcile all your records to your statements from 2020. Make sure your bank records match up with all your records of your income and expenses. Review your accounts payable and accounts receivable records to make sure every bill you paid has been recorded, and every payment made to you has been recorded. Depending on how well you’ve kept up with your bookkeeping throughout the year, this process might go smoothly, or it might be a huge hassle, in which case you might want to consider hiring a bookkeeping doctor like us to make sure you avoid this headache next year.

Taxes and Payroll

Unless there’s another tax extension in 2021, like the one we had in 2020, you should expect taxes to be due on April 15^th, (March 15^th for S Corps), and the earlier you start preparing your taxes, the less stressful the tax season will be for you. That means getting your W-2s and 1099s in order now. 

You need to fill out W-2 forms for all your employees, and 1099s for all your vendors and subcontractors, and make sure you know the difference between an employee and an independent contractor because if you try to classify an employee as an independent contractor, you can get in big trouble with the IRS.

If you got a PPP loan in 2020, that might affect how you report payroll on your W-2s and 1099s, so be sure to stay up to date on all those changes. Don’t forget that 1099s are due January 31^st, so you’ll need to get those out right away.

1099’s

To qualify for a 1099, you need to have paid a vendor or contractor at least $600 during the 2020 calendar year, and you need to be sure of their corporation status. If they’ve incorporated their business as an LLC or partnership that vendor will need a 1099, unless they get taxed as a C-Corp or an S-Corp.  To understand which vendor should receive a 1099 form, you will need to request a W-9 form be filled out by the vendor.  Keep this for your own records.  Also, a helpful tip is to request a W-9 form as soon as you start services with a vendor throughout the year.  This will make your year-end run smoother and assure you will meet the January 31st submission deadline for 1099’s

Budgeting

Now is the time to work out your budget for 2021. While 2020 may have thrown you some curveballs, and it might feel like nothing is predictable anymore, do your best to estimate how much income you can expect your business to generate in 2021, and from there, how much you can afford to spend on payroll, benefits, office supplies, etc. You can use data from 2020 to set goals and a budget for your business in 2021.

Bookkeeping can be a hassle in the best of times, and let’s face it, 2020 was not the best of times, so reach out now if you need a professional to handle your bookkeeping for you, so you can focus on doing what you do best.