As the year comes to an end, small business owners have a lot to think about. One of the most important tasks is closing out your books and preparing for tax season. Doing this properly can save you money, prevent stress, and help you start the new year on the right foot.

A well-organized approach to your year-end finances will ensure that you maximize deductions, avoid penalties, and set up your business for continued success. Here’s a step-by-step checklist to help you wrap up your financial year smoothly.

Review and Reconcile Your Financial Records

The first step in preparing for year-end taxes is making sure your financial records are accurate. Go through your income and expense reports, bank statements, and financial transactions to check for any discrepancies.

• Reconcile your bank and credit card statements to ensure all transactions are recorded.
• Double-check outstanding invoices and accounts payable to see what still needs to be paid or collected.
• Review petty cash and expense reimbursements to make sure they are properly documented.

Keeping accurate financial records will make tax filing easier and reduce the risk of errors that could trigger an IRS audit.

Organize Your Receipts and Expense Documentation

Throughout the year, you’ve likely accumulated numerous business expenses. Before closing out your books, make sure you have proper documentation for all deductions you plan to claim.

• Gather receipts, invoices, and proof of payment for all deductible expenses, such as office supplies, business meals, travel, and professional services.
• Categorize expenses properly in your accounting system so they align with IRS guidelines.
• If you use accounting software like QuickBooks or Xero, make sure all expenses are properly labeled and accounted for.

Good recordkeeping is essential for maximizing your deductions and reducing taxable income.

Calculate and Pay Any Estimated Taxes

If you’re self-employed or own a small business, you may need to make quarterly estimated tax payments. The final payment for the year is due in January, so it’s important to calculate what you owe before the deadline.

• Review your profits and losses for the year to determine if you need to make an additional estimated payment.
• Use IRS Form 1040-ES or consult with a tax professional to ensure you’re paying the right amount.
• Making timely payments can help you avoid penalties and interest from the IRS.

If your business had higher-than-expected earnings, it may be worth making an extra payment now to lower your tax bill when you file your return.

Identify Last-Minute Tax Deductions

There’s still time before December 31st to take advantage of tax-saving opportunities. Look for ways to reduce your taxable income before the year ends.

• Contribute to a retirement plan such as a SEP IRA or Solo 401(k) to lower your taxable income.
• Make necessary business purchases now rather than waiting until next year. Buying new equipment, office supplies, or software can be deducted.
• Write off unpaid invoices as bad debts to reduce your business income.
• Donate to charity if you want to claim deductions while supporting a good cause.

Taking proactive steps now can help lower your tax liability and improve your financial standing for the new year.

Review Payroll and Employee Records

If you have employees or independent contractors, you’ll need to ensure all payroll records and tax documents are up to date.

• Verify employee W-2 forms and ensure all payroll taxes have been properly withheld.
• Collect W-9 forms from independent contractors so you can issue 1099-NEC forms for payments over $600.
• Check that all benefits and bonuses have been recorded properly.

This step is crucial to avoiding payroll tax issues and ensuring compliance with IRS regulations.

Check for Tax Law Changes

Tax laws change from year to year, and some adjustments could impact your business. Research any new deductions, credits, or tax requirements that could apply to your situation.

• Check IRS updates for any changes in tax brackets, deduction limits, or filing deadlines.
• If you work with a tax professional, schedule a year-end consultation to discuss any tax-saving strategies.
• Stay informed about state and local tax requirements, as these can also change.

Being aware of tax law changes will help you avoid surprises when filing your return.

Prepare for Tax Filing

The final step in your year-end tax checklist is gathering everything you need for tax season. Having everything organized now will make the process much easier when it’s time to file.

• Collect all relevant tax documents, including income statements, expense reports, and tax ID numbers.
• Confirm your business entity type (LLC, sole proprietorship, S-corp, etc.) to ensure you’re filing the correct tax forms.
• Schedule a meeting with a tax professional if you need assistance.

The more organized you are now, the less stressful tax season will be.

Final Thoughts

Taking time to close out your books properly will set your business up for financial success in the new year. By reviewing your records, identifying deductions, and preparing for tax season ahead of time, you’ll save money, reduce stress, and avoid costly mistakes.

Small business taxes don’t have to be overwhelming. With a structured year-end tax checklist, you can confidently enter the new year knowing your finances are in order.