7 Year-End Business Compliance To-Dos to Tend to Sooner Rather Than Later
Waiting until the mayhem of the holidays arrives to tackle mandatory business compliance tasks makes an already stressful season even more trying. And delaying filings until a later time can cause big problems.
Failure to submit reports and forms on time can result in fines, penalties, and even suspension or dissolution of a business. Not exactly an ideal scenario for saying “goodbye” to 2021 and “hello” to 2022!
Fortunately, with some forethought and planning, business owners can get a jump on their year-end requirements before becoming neck-deep in buying (and wrapping!) gifts, traveling to relatives, and hosting holiday parties.
I’ll share several year-end requirements that many business owners must tackle to keep their companies in good standing. Keep in mind that not everyone has the same business compliance responsibilities. They vary depending on the entity type, industry, and where a company is located. For that reason, entrepreneurs should make sure they understand the specific rules and requirements applicable to them. Consulting with a trusted attorney and tax advisor can help ensure nothing gets overlooked.
1. Hold an annual meeting.
Nearly every state requires corporations to hold annual shareholder meetings and record minutes from those meetings. In some states, LLCs (limited liability companies) must conduct annual member meetings. Even if not required by statutory rules, an LLC might still have to hold a meeting per the conditions of its operating agreement. Any business responsible for holding an annual meeting but hasn’t held one yet in 2021 will want to schedule it soon!
2. Submit an annual report.
Many states require LLCs and corporations to submit an annual report every year. Some have biennial reports (every two years) instead. And then others—like Pennsylvania and its decennial reports (every ten years)—follow a different schedule. Business owners must research their state’s rules and deadlines so that they don’t miss this critical compliance responsibility.
Not only do the frequency of the reports vary, but also do the due dates. Some states set deadlines that match the anniversary of the business’s formation or incorporation date. Others require the reports at the same time as when annual tax statements are due. Others require them by the end of the calendar year.
3. Review tax payments made in 2021 so far.
Businesses (such as sole proprietorships, general partnerships, and disregarded entity LLCs) that make quarterly estimated income and self-employment tax payments throughout the year can benefit from reviewing their year-to-date revenue, expenses, and tax payments. Checking the math can help them determine if they’ve underpaid or overpaid their taxes for the year. Then, they can discuss their situation with their tax advisor or accountant to see if it might make sense to make any adjustments to their last estimated tax payment of the year to offset any overage or shortage.
4. Evaluate if the business entity type still creates the best legal and financial scenario.
The business structure a startup chooses initially might not remain the best option as the company grows and evolves. For example, a sole proprietorship that has added employees to its payroll and expanded its product lines may find that the personal liability protection and tax flexibility of an LLC will provide an optimal situation legally and financially. Attorneys, accountants, and tax advisors can help entrepreneurs assess the entity type will serve their needs and determine the ideal time to make the change effective.
5. Inform the state of fundamental changes.
Businesses registered as limited liability companies and corporations must officially notify the state of certain changes that have occurred with the entity. In many states, the form used for the filing is called either “Articles of Amendment” or “Certificate of Amendment.”
Generally, changes that warrant an amendment notification include:
- The company has changed its name.
- The business moved and now has a new address.
- One or more of the LLC’s members have left the organization, or there are new members.
- The corporation has authorized more shares to be sold.
- The corporation added a new class of stock.
- There have been changes to who is serving on the corporation’s board of directors.
- The entity has changed its registered agent.
- The business added, changed, or deleted provisions of its original organizational documents – e.g., Articles of Organization (LLC) or Articles of Incorporation (corporation).
Business owners should submit articles of amendment to report changes like these as soon as possible in the year they occurred so that the state has accurate information on record about their company. Having current details filed with the state helps ensure an entity stays in good standing and maintains the corporate veil that protects its owners’ personal assets from legal and financial claims against the business.
6. Register for Payroll Taxes.
Entrepreneurs who plan to hire their first employees in 2022 can hit the ground running by registering for payroll taxes before the new year arrives. Employers withhold federal income tax from employees’ paychecks, so they need an EIN (Employer Identification Number) if they haven’t already obtained one from the IRS. State registrations include State Unemployment Insurance Tax (SUI), which offers short-term unemployment benefits to eligible workers who are unemployed due to losing their jobs or leaving due to health or personal problems. Also, most states require businesses to register to withhold State Income Tax (SIT) from their employees’ gross wages and remit them to the state’s tax agency.
7. Dissolve an inactive business.
Closing a business involves more than simply putting the brakes on selling products or services. Entrepreneurs must follow a process to officially end the LLC or corporation’s existence by filing a document called “Articles of Dissolution” or “Certificate of Termination” with the Secretary of State office. In some states, general partnerships must file paperwork to notify their state of their dissolution.
Other tasks might include closing the business’s tax accounts and canceling business licenses and permits.
Failing to formally notify the appropriate state, federal, and local agencies when closing a business could mean that the owners will remain responsible for filing required reports and paying taxes and other fees even though they have ceased operations.
Ring in the Holiday Season Right; Check Compliance Tasks Off Your List Now
Although it may seem like the end of the year is far away, it’s approaching quickly. Get organized and tackle your remaining compliance responsibilities now so that you can enjoy the merriment of the holidays without any distractions!
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.