If you have not already done so, now is the time to review your tax situation and make an estimated quarterly tax payment using Form 1040-ES. The second quarter due date is now here.

Due date: Monday, June 16, 2025

You are required to withhold at least 90 percent of your 2025 tax obligation or 100 percent of your 2024 tax obligation.* A quick look at your 2024 tax return and a projection of your 2025 tax obligation can help determine if a payment is necessary. Here are some other things to consider:

• Avoid an underpayment penalty. If you do not have proper tax withholdings during the year, you could be subject to an underpayment penalty. The penalty can occur if you do not have proper withholdings throughout the year.
• W-2 withholdings have special treatment. A W-2 withholding payment can be made at any time during the year and be treated as if it was made throughout the year. If you do not have enough to pay the estimated quarterly payment now, you may be able to adjust your W-2 withholdings to make up the difference.
• Self-employed workers need to account for FICA taxes. In addition to your income taxes, remember to also account for your Social Security and Medicare taxes. Creating and funding a savings account for this purpose can help avoid a possible cash flow hit each quarter when you pay your estimated taxes.
• Don’t forget state obligations. With the exception of a few states, you are often also required to make estimated state tax payments if you have to do so for your federal taxes. Consider conducting a review of your state obligations to ensure you also comply with these quarterly estimated tax payments.

• Select the proper accounting method. There are two different methods for recording transactions: cash-basis and accrual-basis. In general, the cash-basis method records a transaction when a payment is made, while the accrual-basis method books the transaction upon delivery of the good or service. Cash-basis is easier to track and a useful option for smaller businesses and sole-proprietors. Larger businesses who buy from vendors on account (accounts payable) generally use accrual-basis accounting.

Selecting the proper method affects any related financial transactions and how your financial statements are displayed. A correct approach will also include consideration of outside factors, including IRS rules (businesses with more than $25 million in gross receipts must use accrual-basis), bank covenants, and industry standards. Once a choice is made, it can be changed but it must be properly reported to the IRS.

• Create an account structure that fits the company. Every business has a chart of accounts included in their bookkeeping system. These accounts sort the business’s transaction data into six meaningful groups. They are assets, liabilities, equity, income, cost of goods sold and other expenses. Each group will often have numerous accounts and sub-accounts associated with them.

Having the right mix of accounts, created and grouped in an organized fashion, will help you properly classify transactions and prepare usable financial statements. The proper account structure for your company will mesh with your specific information needs.

• Enter accurate and timely transactions. The value your data provides is dependent on each transaction being recorded correctly and on time. Entering transactions in the wrong account can cause major issues down the road. Financial reporting that is delayed can hide problems that need immediate attention. Some transactions are relatively straightforward, and some are more complex (like payroll, accruals and deferrals).

It’s important to have someone who understands both your business and the accounting rules to enter your transactions in a timely fashion. In addition, a good month-end close process that involves reviewing each account will help you identify and fix mistakes from the initial entries.

• Establish financial statements for decision-making.The main financial statements are the income statement (income – expenses = gross profit), the balance sheet (assets – liabilities = equity) and statement of cash flow. Each statement has a specific purpose:
  • Income statement. The income statement shows company performance for a select period of time, typically monthly with a full-year summary. At the end of each year the income statement restarts.
  • Balance sheet. The balance sheet displays a company’s overall health on a specific date. It is perpetual. This means it doesn’t end until the business is closed or sold. It includes one line that summarizes the current year and prior year results from the income statement.
  • Statement of cash flow. This statement summarizes the inflows and outflows of cash. It ensures you know whether you have enough cash and the pattern of your cash position over time.

If properly executed, your bookkeeping system will create accurate financial statements that can be used to make key financial decisions. Feel free to call with any questions or to discuss bookkeeping solutions for your business.