Year-End Accounting Checklist for Small Business Owners

While most people don't think of tax season as an exciting time to look forward to, it doesn't have to be something you dread. You'll be okay if you know what you're getting into and prepare. And there's no better time to prepare than right now, especially as we start approaching the end of the year. 

If you wait until the following year to gather your records and tax data, you will make it much harder for yourself than it needs to be. You can do a lot in your year-end accounting to optimize your tax savings, prepare to pay taxes in April, and improve your planning and accounting overall.  

Use your time while you’ve got it in 2022. Find out more and develop a small business year-end accounting checklist for your company to use this December.

What is Year-End Accounting?

For your 2022 tax return, you are only responsible for your income and expenses between January 1, 2022, and December 31, 2022. So as the end of the 2022 tax year gets closer, you are approaching your final chance to change how you calculate your taxable income.

End-of-year accounting is about the specific management and bookkeeping involved in preparing your company's accounts for the end of the fiscal year. Whether a business owner or a tax professional, the year's end is essential for attending to company finances.

When Does the Accounting Year End?

The accounting year may vary for each different business owner. Most businesses follow the calendar year, which means their accounting year begins on January 1 and ends on December 31. Other companies may have their 12-month fiscal year adapted for their schedule.

Why Should Small Businesses Create a Year-End Accounting Checklist?

The end of the year is an excellent time to be proactive in managing your tax bill. You can do a lot in year-end preparation to ease your tax burden and take control of your liability before you’ve closed the books for 2022. 

Developing an accounting checklist and going through it with your staff or an accountant will set your business up for success in the tax season and the new tax year ahead. You can close out the tax year on your terms and prepare yourself to shift into the next one. 

If you take a step back to planning at these natural transition times, you'll always react at the moment instead of deliberately moving toward the future. Keeping an end-of-year checklist for small business owners makes planning an intentional part of your year.

6 Items to Include in Your Small Business Year-End Checklist

You’re taking the time to make sure your company is in good financial shape for the next year with your year-end accounting checklist, but where do you start? Here are some critical items you should attend to as you wrap up the year.

• Tax deductions
• Review and close out records for the year
• Ensure you’re paying your quarterly estimated taxes
• Estimate your tax liability
• Get organized for the new year
• Consult a tax professional

1. Maximize Your Deductions 

Tax deductions are an essential piece of your year-end accounting checklist. Claiming all your tax-deductible expenses will make a significant difference on your small business tax return, and all of those expenses need to happen before the accounting year ends. 

Schedule your business expenses before the end of December if you want to be able to deduct them from your taxable income. On the other hand, you could postpone significant expenses until January if you expect to have more revenue to offset in the coming year. 

2. Review Your Books for the Year

Your year-end closing process is about closing the books on the previous year's finances to be prepared for tax season. To get there, your bookkeeping for the last year needs to be thorough and complete. 

Group similar transactions and set apart any major purchases made throughout the year. Identify refunds, income, and owner contributions. You should have a complete accounting of all your assets and liabilities, including accounts receivable and accounts payable that haven’t been processed yet, like unpaid debts or outstanding invoices. Double-check and update your inventory count of unsold goods.

Be sure to revisit and sort through these financial statements, too. If you let months go by before you go over these files, you will need to remember more to do this accurately and efficiently.

Bookkeeping for your small business may initially seem manageable, but it can quickly become overwhelming. If you're struggling, reach out for assistance before submitting your information for tax preparation. 

3. Pay Quarterly Taxes

Your year-end checklist should also remind you to stay current on your quarterly estimated taxes. These are pre-payments to your tax bill based on what you expect to owe in a final accounting. 

Here are the quarterly estimated tax deadlines: 

• Quarter 1 Deadline: April 15
• Quarter 2 Deadline: June 15
• Quarter 3 Deadline: September 15
• Quarter 4 Deadline: January 15 of the following year

It's better to pay more in estimated taxes than underpay. If you underestimate what you owe, you could leave yourself with a large tax balance at the end of the year and get hit with underpayment penalties. Ensure your business is tax compliant by working with a quarterly estimated tax expert.  

4. Estimate Your Liability Ahead of Time

Another crucial step in year-end closing accounting is to estimate what you’ll end up owing on your final return. Knowing more or less how much you’ll owe in advance can help you prepare for filing and paying. 

Spend time calculating your total gross receipts. Overstated receipts lead to paying unnecessary taxes, while understated income numbers can mean penalties with the IRS further down the road. You don’t want either to happen to you. You can work off of your tax records from previous years to get started. 

Plan for a year-end accountant consultation to ensure you're on top of all your income streams and possible deductions. You'll need all of that information to get an accurate estimate of your final liability.

5. Get Organized for the Next Year

Ending a year is like completing a chapter in your life or the life of your business. You can close that chapter and begin a new one in a way that sets you up for success with organized recordkeeping. 

Use your year-end accounting checklist to ensure you're ready for the new year. It's the perfect time to make significant changes to your process, try out new accounting software, or update your system with other recent accounting trends. 

6. Check in with an Expert Accountant

Be sure to set up an appointment with a professional before the last minute in April. Take the time now to consult with your accountant on how to do year-end accounting for your business. 

It is an excellent opportunity to get ahead of the game and ensure you're as informed and prepared as possible with your year-end accounting checklist. Consulting with your accountant for year-end planning is a smart way to ensure you cover your bases. However you decide to proceed, your company’s finances are in your hands. It takes time to get your small business taxes done right, and there’s no better time than the present to invest in future savings.