A year-end business compliance checklist

December 9, 2021 11:13 AM

As this year nears its conclusion, it’s time for your business clients to take stock of — and tackle — any outstanding business compliance tasks. Loose ends could jeopardize their company’s good standing with their state. In this article, I’ll cover some of the key points clients will want to pay attention to as 2022 arrives.

By looking back — and thinking ahead — your clients will find themselves better able to put their businesses on a successful trajectory. The considerations I’ve shared here should serve as a good starting point for getting their thought processes in motion. I encourage you to review their unique situations and offer your expertise and insight to help them move forward confidently.

Annual report filings

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). You’ll want to remind your business clients to 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? It could face fines, late fees and other penalties. If your business clients are required to file an annual report in 2021 but haven’t yet, they’ll want to tend to this important task.

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. Your business clients should read their operating agreement or bylaws carefully to make sure they conduct their meetings and prepare minutes properly.

Reporting of 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 clients 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 business owners to check with their state about what they must report.

Income tax payment status

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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 they’ve paid thus far aligns with what they will owe for the year. By examining their year-to-date revenue, expenses and tax payments, they can discover if they’ve underpaid or overpaid. Then, they can discuss with their tax advisor or accountant if they should adjust what they’ve planned as their 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.

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 the companies that used their services by Jan. 31, 2022. So, if your business clients paid any freelancers or other independent contractors $600 or more this year, they’ll want to make sure sending 1099-NEC forms is on their radar.

Payroll tax registration

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If you have clients who are operating their businesses single-handedly but planning to hire paid employees next year, they can get a jump on the process by putting their payroll tax registration ducks in a row. Now’s a great time to educate them about how it all works and assess how it will impact their business financials. Or refer them to a trusted resource who is legally qualified to help them.

Business structure suitability

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The business entity type your clients 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 they want to grow their businesses, protect their personal assets and reduce their self-employment tax burden. Or owners of LLCs or corporations may decide to

make a change

.

After they’ve discussed the tax-related and financial impacts with you (or a resource you’ve directed them to) and the legal details with an attorney, there will be business formation paperwork to file with the state if they decide to move forward. If they act promptly, they may be able to have their 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.

Business expansion beyond state boundaries

Have any of your business clients set their sights on setting up offices, stores or sales representatives in other states next year? Or are they intent on boosting product or services sales substantially in certain states where their revenues may tip the scales on the economic nexus thresholds? Then they 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.