As the end of the year approaches, business owners need to ensure their financials are in order to prepare for tax season. Proper bookkeeping at year’s end can save time, reduce stress, and help you maximize deductions. Here’s a comprehensive bookkeeping checklist to help you wrap up your business finances and prepare for taxes.

1. Reconcile Bank and Credit Card Accounts

Start by reconciling your bank and credit card statements with your accounting records. This process assures that your books accurately reflect the cash that went in and out of your business. Look for discrepancies, such as missing transactions, duplicate entries, or unrecorded expenses. Reconciliations help prevent errors that could lead to tax penalties or missed deductions. You also may encounter some timing differences, where the date in the accounting system is slightly different than the statement date. When you encounter missing transactions or additional transactions, be sure to check for timing differences before adding or deleting transactions from the register.

Tip: Use accounting software like QuickBooks to automate reconciliation, which will simplify the process and provide a clearer picture of your cash flow.

2. Review Accounts Receivable and Payable

Make sure all outstanding invoices (accounts receivable) and unpaid bills (accounts payable) are properly recorded. Follow up on overdue payments and pay any outstanding bills before the year ends to keep your cash flow in check.

• Accounts Receivable: Send out reminders for overdue invoices to improve cash collection before year-end.
• Accounts Payable: Ensure all vendor invoices have been entered, and consider paying them off before the new year to maximize deductible expenses.

3. Record All Income and Expenses

Verify that you’ve captured all income and expenses for the year. Cross-check your receipts, bank transactions, and credit card statements to make sure nothing is missing. Remember, expenses that are not recorded cannot be deducted, and unrecorded income could lead to underreporting.

Pro Tip: Organize your expenses into categories like rent, utilities, payroll, advertising, and office supplies to make tax preparation easier.

4. Evaluate Fixed Assets and Depreciation

Review your fixed assets, such as equipment, vehicles, and property, and ensure they are accurately reflected on your balance sheet. Determine if any assets were sold, disposed of, or purchased during the year.

Also, review depreciation schedules. Depreciation can provide valuable tax deductions, so make sure all applicable assets are properly depreciated. Consider consulting with an accountant to help you keep track of your fixed assets and depreciation.

5. Take an Inventory Count

For businesses that sell physical products, conducting an accurate year-end inventory count is essential. Compare the physical count to the inventory records in your books. Any discrepancies should be investigated and adjusted in your accounting system.

Tip: Write off any obsolete or unsellable inventory, as this can reduce taxable income.

6. Review Payroll Records and Ensure Compliance

If you have employees, review payroll records to ensure that all wages, bonuses, and payroll taxes are properly accounted for. Make sure your payroll system is compliant with state and federal tax requirements.

• W-2s: For businesses with employees, make sure to prepare W-2s for each employee by the end of January.
• 1099s: Ensure all independent contractors are issued a 1099 form if you paid them $600 or more during the year.

7. Review Business Loans and Lines of Credit

Review the balances on any business loans, lines of credit, or other liabilities. Ensure that all interest expenses have been recorded and that loan payments are accurately reflected in your books. Most accounting software will allow you to reconcile your loan balances using their reconciliation tool.

8. Maximize Tax Deductions

Review your books for any deductible expenses that can be maximized before the year ends. Some common year-end tax planning strategies include:

• Business Expenses: Consider making purchases for necessary supplies, equipment, or software before year-end to lower your taxable income.
• Retirement Contributions: If you have a retirement plan like a SEP IRA or 401(k), maximize your contributions to reduce your taxable income.
• Charitable Contributions: If your business donates to charitable organizations, make sure to record these donations for a potential deduction.

9. Review Personal Accounts

When closing out your financials for the year, make sure to review your personal accounts for any business-related transactions. To accurately reflect your business activity in your financial statements, it’s important to include all business transactions, whether they were made from a personal or business account.

The best practice is to use only business bank and credit card accounts for business transactions. This helps reduce the risk of accidentally omitting any business-related expenses.

10. Run Financial Reports

Generate key financial reports to assess your business’s performance over the year and ensure your records are accurate. Focus on:

• Profit and Loss Statement (Income Statement): This report summarizes your business’s revenues, costs, and expenses, showing whether you made a profit or loss.
• Balance Sheet: This report gives a snapshot of your business’s assets, liabilities, and equity, providing insight into your financial health.
• Cash Flow Statement: This report tracks the flow of cash in and out of your business, which is vital for assessing liquidity and managing cash reserves.

11. Review Your Chart of Accounts

Take the opportunity to clean up your chart of accounts by archiving unused accounts and adding new ones as needed. Having a well-organized chart of accounts will help keep your books in good shape and make tax time smoother.

12. Consult with Your Accountant or Bookkeeper

Finally, schedule a meeting with your accountant or bookkeeper to review your financials and discuss tax-saving strategies. They can help you spot errors, make adjustments, and provide guidance on year-end tax planning.

Pro Tip: An experienced bookkeeper can also help you prepare for the new year by setting up a solid bookkeeping system that ensures you stay organized and compliant throughout the next tax year.

Year-end bookkeeping is crucial for maintaining accurate financial records and preparing for tax season. By following this checklist, business owners can streamline their bookkeeping tasks, reduce stress during tax time, and ensure they are taking advantage of all available tax deductions.

Whether you’re handling your books yourself or working with a professional, the key is to start early and stay organized to make tax preparation as smooth as possible.