What You Should Know for Year-End Accounting and Bookkeeping

The end of the year is approaching and businesses are wrapping up and preparing for next year. Closing out the books can be quite a scramble. Don’t start the new year off behind the ball.

Here are the top 9 accounting highlights to consider going into 2021:

1. Higher 401(k) contribution limits. If you’re looking to do some tax planning to reduce your taxes and save for the future, consider investing into your 401(k). Taxpayers will be able to contribute up to $19,500 to their 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan in 2021, which is the same as in 2020. The catch-up contribution limit for employees age 50 and older also stayed the same at $6,500 for 2021.
2. Higher elective deferrals for SIMPLE plans. A SIMPLE IRA plan provides small employers with a simplified method to contribute toward their employees’ and their own retirement savings. The 2021 maximum stayed the same at $13,500.
3. The Social Security base has increased to $142,800. Once your gross wages have reached this amount in a calendar year, social security tax will no longer be calculated for the employee and employer. This is another great tax planning strategy to reduce your taxes and save for retirement.
4. Unemployment rates change each year for some states. Look for your notification and update the rate in your payroll program so that paychecks in 2021 are calculating this employer tax properly. Further, make sure your payroll program has taken into account any CARES Act considerations that may affect you or your employees.
5. IRA contribution limits unchanged. The IRA contribution limit will remain at $6,000 in 2021. Investors age 50 and older can contribute an additional $1,000 to an IRA. For tax, amounts invested into a Roth IRA are not tax deductible, whereas amounts invested into a Traditional IRA are tax deductible.
6. The standard mileage rate for 2021 for the use of a car, van, pickup or panel truck is 57.5 cents per mile for business miles driven, consistent with 2020. An application to track mileage is Expensify. You can sign up for a free trial at https://www.expensify.com/. If you’re someone who does your own bookkeeping, utilizing applications like Expensify is any way to save time each month!
7. Gather your W9’s from contractors and vendors to determine which are eligible for 1099 reporting. Individuals, sole proprietors, and single-entity LLC’s are eligible. When in doubt, file a 1099. When you’ve reimbursed a contractor for material, include this in the amount reported. The contractor can deduct these expenditures and is responsible for providing the receipts. THIS year there is a brand new 1099, called 1099-NEC, for nonemployee compensation in 2020. We still have the Form1099-MISC, which is used in all the usual circumstances except for nonemployee compensation. To be clear, your business may still need to use both forms. If you have any questions about filing 1099s, be sure to reach out to your accountant for help! It’s better to ask for help than to face penalties and fines or an audit.
8. Start the budgeting and planning process for next year. Besides the budgeting feature that is included with your subscription to QuickBooks Online (Plus and Advanced versions only), you can use LifePlan which integrates with QBO, and is more robust. You can learn more about it here: http://www.liveplan.com/ Budgeting can help you increase your profits, reduce your expenses, identify areas of opportunity, and prepare for the future.
9. Set up your accounting system for success! Not all accounting systems are the same. Whether you hire an accountant, bookkeeper, or are doing everything in-house, make sure you have your accounting system set up properly. At Remond, we are happy to help you set up your accounting system so your accounting department can function just like we do – in the cloud, paperless, and using maximizing the use of automation. automation.. If you’re wanting a review of your accounting system, book a time on our calendar below; we offer complimentary accounting system reviews.

I’m sure you’re just as excited as we are for the end of this year. We at RAI are wishing you well for 2021!

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