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end of year business compliance checklists

As we wrap up 2021, businesses need to take stock of — and tackle — any outstanding business compliance tasks. Loose ends could jeopardize your company’s good standing with your state. By getting your business “ducks in a row,” your business will be better able to be a successful trajectory as we enter 2022. Below are some guidelines to serve as a good starting point for getting their thought processes in motion.  Keep in mind that each business has unique situations and you may need outside legal or tax expertise to move forward confidently.

1 File Annual report

Many states require LLCs and corporations to submit an annual report every year, every other year, or on some different timeline (e.g., Pennsylvania’s decennial reports). Business owners should check if and when they must file an annual report.

States’ due dates for these filings vary. Possibilities include: The end of the calendar year; the anniversary of a company’s incorporation or formation date; or the date that the company’s annual tax statements are due.

What happens if a business fails to file its annual report? You could face fines, late fees, and other penalties.

2 Member or shareholder meetings

LLCs and corporations may be required to hold an annual meeting of the company’s owners and record minutes from that meeting. The state’s laws and company’s governance documents (LLC operating agreement or corporate bylaws) determine if member or shareholder meetings are required. When holding these meetings, someone must take minutes to document what took place and what was discussed. Generally, minutes must be approved by an LLC’s members or a corporation’s board of directors. You should read your operating agreement or bylaws carefully to make sure you conduct their meetings and prepare minutes properly.

3 Reporting key business changes

States require that LLCs and corporations notify them of key changes. Usually, this is done by submitting paperwork called articles of amendment to update what was initially filed in the company’s formation documents. Below are some examples of the types of changes your business may need to report to the state:

New, revised or deleted provisions in the company’s formation documents (i.e., LLC’s articles of organization or corporation’s articles of incorporation).

  • New address;
  • Change to registered agent information;
  • Authorization to sell more shares or add a new class of stock;
  • Change in LLC ownership;
  • Changes in who serves on the board of directors; and,
  • Change in the company’s business activities.

There may be other changes that require formal notification to the state, too. For peace of mind, it’s wise for businesses to check with their state about what they must report.

4 Income tax payment status

It can be helpful for disregarded business entities (e.g., sole proprietorships, general partnerships and LLCs not taxed as S corps) that make quarterly estimated income and self-employment tax payments to review if what you’ve paid thus far aligns with what you will owe for the year. By examining your year-to-date revenue, expenses and tax payments, you can discover if you’ve underpaid or overpaid. Then, you can discuss with your tax advisor or accountant if you should adjust what you’ve planned as your last tax payment for 2021, which is due by Tuesday, Jan. 18, 2022.

Note: Usually, the deadline is Jan. 15, but because the 15th falls on the weekend and Monday, Jan. 17, is Martin Luther King Jr. Day, the due date extends to the next business day.

5 Payroll tax registration

If you are operating your businesses single-handedly but planning to hire paid employees next year, you can get a jump on the process by putting your payroll tax registration in order. Now’s a great time to learn about how it all works and assess how it will impact your business financials. Feel free to contact Madonia & Associates if you need legal assistance with this.

6 Business structure suitability

The business entity type you have chosen may no longer be the ideal structure for optimal tax outcomes or legal protections. Sole proprietorships and partnerships especially may want to explore forming an LLC or incorporating if you want to grow your businesses, protect your personal assets and reduce your self-employment tax burden. Or owners of LLCs or corporations may decide to make a change.

After you’ve discussed the tax-related and financial impacts with a business advisor and the legal details with an attorney, there will be business formation paperwork to file with the state if you decide to move forward. If you act promptly, you may be able to have your new entity officially up and running on the first day of the New Year. That clean break between entity types can help simplify tax filings as there’s only one entity that must file taxes in 2021 and one to file taxes in 2022.

7 Independent contractor tax-related forms

Before the 2020 tax year, businesses typically issued Form 1099-MISC to independent contractors to whom they paid $600 or more. Now, the form that companies must submit to contractors is IRS Form 1099-NEC. Independent contractors should receive these forms from you by Jan. 31, 2022. So, if you paid any freelancers or other independent contractors $600 or more this year, you’ll want to make sure to send a 1099-NEC form.

8 Business expansion beyond state boundaries

Thinking of setting up offices, stores or sales representatives in other states next year? Or are you planning to boost product or services sales substantially in certain states where your revenues may tip the scales on the economic nexus thresholds? Then you will want to research what needs to be done to foreign qualify their company in those states and (if applicable) register to collect and remit sales tax. States’ secretary of state websites provide information, and your clients should discuss their obligations with a licensed tax professional and attorney to make sure they take the necessary steps.

Handling these business compliance matters now allows you to enter 2022 ready to run a successful business with less stress and headaches. We at Madonia & Associates are available to help or offer advice as needed. From business structure, shareholder agreements and legal compliance to real estate transactions, mergers, acquisitions and representation, having legal counsel and guidance from a Chicago business attorney is imperative in protecting your interests. Contact us today at (312) 578-9300 or info@madonia.com.