END-OF-YEAR REPORTING

A Checklist For Your Startup

Lisa Johnson, Director of Tax, FintechForce

Another year is coming to a close! It’s a good time to take stock of your company’s past 12 months and get your ducks in a row for 2024. Year-end reporting is always more involved due to annual filing requirements. Businesses must look at financial “housekeeping” every month, but the end of the year demands a closer look at the financial reports and performance assessments before diving into a new year.

All U.S. entities are required to report worldwide transactions which include those conducted in digital currency and through foreign accounts. Neglecting to report these can result in substantial penalties, so here are some highlights of the transaction reporting requirements to stay compliant in the coming year.

Year-End Reporting

Tax information returns for the calendar year are due to recipients by January 31st, 2024. Forms 1099 for Nonemployee compensation and other Miscellaneous Payments are due if a business pays at least $600 to a U.S. recipient for services or events other than sales of tangible assets. A best practice to comply with this requirement is to ensure that all recipient information including name, address, and tax identification numbers are up to date in your files before the reports are due. Form W-9, Request for Taxpayer Identification Number and Certification, is used to request this information from vendors throughout the year.

The U.S. government attempts to keep companies honest about worldwide transactions by requiring any U.S. individual or entity who has financial interest in accounts outside of U.S. borders to report information via the Foreign Bank and Financial Accounts Report (FBAR). This report is required for entities with accounts of an aggregate balance of $10,000 at any time during the calendar year. The report is due by April 15th and must be submitted electronically through the FinCen system. Filing late or not at all is subject to civil and/or criminal penalties. It is important to note that if an individual has signature authority over a business account outside of the U.S., both the individual and the business must file this annual report.

Additional Year-End Reporting For Corporations

Corporations have additional filing requirements for information returns when specific stock transactions occur with U.S. employees. When an employee exercises an Incentive Stock Option, Form 3921 is due to the recipient and to the IRS. When an employee becomes owner of an Employee Stock Purchase Plan, Form 3922 must be filed and delivered to recipients by January 31st. The sooner this is handled, the sooner you can go from looking back to looking ahead.

Continuous Reporting

Any business who accepts physical cash payments over $10,000 has an important filing which is due year round. The Report of Cash Payments Over $10,000 (Form 8300) is filed electronically through the FinCen system within 15 days of receiving these funds in a single cash payment or a series of related payments by a trade or business. The business must also provide a statement to each party included on a report during the calendar year by January 31st of the following year. Beginning January 1st, 2024, this requirement is extended to include virtual currency transactions.

These are just some of the things to keep in mind as you wrap up 2023. As the end of the year approaches, it’s natural to reflect upon how far you’ve come and look at where you’re headed. Whether you’re handling matters yourself or reaching out for assistance, getting your year-end financials and reporting ready now for the new year deadlines will put you one step closer to starting 2024 on a high note.

STAY ON TRACK WITH TECHNICAL ACCOUNTING

Don’t Get Spooked By The Complexities

Devin Bissessur, Assistant Director, Corporate Accounting

Technical accounting can be a very complicated subject, especially for a startup business.  New entrepreneurs have innovative and inspiring ideas on how to improve their businesses with a laser focus on decisions that can take their company to the next level, and they may overlook this critical component.  

However, poor technical accounting can derail the future plans of a great business.  Recognizing revenue too early, a lack of proper internal controls and improper recognition of financial instruments can result in significant costs, legal charges, and overall stress for the management of a company.

IMPACT OF INSUFFICIENT TECHNICAL ACCOUNTING PLANNING

The lack of technical accounting and planning has resulted in numerous issues for both startup and mature businesses.  The result of U.S. Securities and Exchange Commission (SEC) charges can significantly impact the future success of a business and the founder’s reputation in their industry.  Below are some recent examples of charges due to the lack of technical accounting oversight and governance:

• July 3, 2023: Future FinTech Group (FTFT) was charged by the SEC for filing materially inaccurate annual reports and failure to maintain internal control.  It was discovered that the assets should have been impaired earlier, and ASC 360 (Property Plant and Equipment) was not followed.  The SEC ruled that the personnel did not have proper expertise in GAAP and SEC reporting requirements.
  
  
• June 27, 2023: Las Vegas-based supplement company MusclePharm executives were charged by the SEC for prematurely recognizing revenue early for orders that did not transfer to the customer.  In addition, the SEC stated that customer credits were misclassified as advertising revenue instead of reductions to revenue.
  
  
• August 3, 2022: The SEC charged Suralign Holdings with improper revenue practices to recognize revenue earlier than required which violated US GAAP ASC 606 (Revenue) guidance.  The result was a $2M fine and charges against the executives.
  

TECHNICAL PLANNING FROM INCEPTION

A startup can avoid costly adjustments, audit fees, and general stress if the right technical guidance is provided from the beginning.  Technical accounting includes the following functions:

• INTERPRETING ACCOUNTING STANDARDS.  Understanding the detailed guidance provided by US GAAP accounting standards on specific transactions or financial statement presentations.  Accounting guidance is constantly changing, and being ahead of the curve can reduce errors and costly misstatements.  The following are examples of technical topics that affect new businesses:
  
  
  • Treatment of Simple Agreement for Future Equity (SAFE) notes on the Balance Sheet
  • Change to the disclosure of Cryptocurrencies on the Balance Sheet
  • ASC 730 Capitalization of R&D expenses
  • ASC 606 Revenue Recognition
  • ASC 810 Consolidations
    
    
• COMPLEX TRANSACTION ANALYSIS.  Analyzing and determining the appropriate accounting treatment for complex business transactions.  This could include mergers and acquisitions, financial instruments, and revenue recognition for complicated contracts.  Proper analysis can unlock cost savings in a transaction and improve disclosures which potential investors would find attractive.
  
  
• FINANCIAL REPORTING.  Preparing and reviewing financial statements to ensure compliance with applicable accounting standards.  Appropriate historical compliance will ensure the IPO process will be quicker and less costly.  Proper financial reporting will be easier to read and attractive to potential investors and underwriters.
  
  
• RESEARCH AND DOCUMENTATION.  When faced with unique or complicated transactions, technical accountants often must research the relevant accounting standards or seek guidance from professional bodies or advisory firms.  They then document their findings and the rationale behind the accounting treatment chosen.
  
  
• LIAISING WITH AUDITORS.  Technical accountants interact with external auditors, explaining and defending the company’s application of accounting standards.
  
  
• STAYING COMPLIANT.  Accounting standards can evolve, and new ones can be issued.  Technical accountants must stay updated on these changes and understand their implications.
  

Investment into technical accounting can be a tremendous benefit to a business of any size who has strong growth plans.  Early recognition and compliance with accounting guidance can avoid costly mistakes and keep startups on track, ensuring the management team can focus on their business and be a leader in their industry.