Year-End Accounting Checklist for Small Business Owners: 12 Can’t-Miss Tasks

As the year winds down, small business owners need to tie up financial loose ends for year-end tax preparation. A solid year-end accounting checklist ensures you stay compliant, maximize deductions, and set yourself up for success. Here are 12 critical tasks you can’t afford to overlook.

1. Remind Employees to Update Their Records

Encourage employees to review their personal details, including addresses, tax withholdings, and benefits. Updated addresses prevent issues with W-2 delivery, and current withholdings help avoid tax surprises. Correct benefits information ensures employees get the right coverage and deductions. Keeping these details accurate reduces errors and saves time for everyone involved.

2. Ensure Employees Receive and Retain W-2s

Make sure your team knows when and how they’ll receive their W-2s. Employees need these for tax filing, and losing them can create unnecessary delays. Mitigating potential payroll tax mishaps is crucial for both the employer and employee.

3. Collect and File 1099s

If you’ve paid independent contractors $600 or more, you’re required to issue 1099-NECs by January 31. Failing to do so can result in IRS penalties, so contractors should definitely be on your year-end accounting checklist. Read more about employer responsibilities for issuing 1099 forms here.

4. Account for Loan and Rent Interest

If your business pays rent to an individual or (non-corporate) partnership or interest on long-term loans, you may need to issue a 1099-INT or 1099-MISC. The IRS requires this if you’ve paid more than $600 over the year. It helps the IRS track taxable interest income and ensures the recipient properly reports it on their tax return. Completing this step early ensures you don’t miss any required filings.

5. Gather Tax Documents

Compile all necessary tax documents, including income statements, expense reports, and payroll records. Staying organized now makes filing small business taxes easier and simplifies later steps like closing your books and estimating your tax liability. Read more about preparing for tax season here.

6. Maximize Tax Deductions

Even small business accounting involves planning for tax deductions. Review your expenses and decide whether to make last-minute purchases or defer them to next year. Common deductions include office supplies, home office deductions, software subscriptions, and business-related travel. Proper planning can reduce your tax burden.

7. Estimate Your Tax Liability (or Refund)

Determine if you’ll owe taxes or expect a refund. Having an ongoing relationship with a tax advisor or preparation service like JLS Accounting can help you here. If you’re self-employed or have significant business income, ensure you’ve made sufficient estimated tax payments. Completing this step before closing your books helps provide a clearer financial picture.

8. Close the Books and Prepare Financial Statements

Ensure your bookkeeping is up to date, reconcile all accounts, and generate key financial reports like your profit and loss (P&L) statement, balance sheet, and cash flow statement. Completing earlier steps, like gathering tax documents and estimating tax liability, makes this process smoother and more accurate.

9. Review Compensation and Benefits Plans

Evaluating your current payroll structure, retirement plans, and benefits is another crucial item for your year-end accounting checklist. This is an opportune time to make adjustments for the upcoming year and ensure your small business remains competitive. If you own a small business and are considering offering health benefits (they play a significant role in attracting and retaining employees), read more about ICHRA plans (a more affordable alternative to group health plans).

10. Prepare for a Workers’ Compensation Audit

If your business carries workers’ compensation insurance, be ready for an annual audit. Gather payroll records and ensure your employee classifications are accurate. Completing this step before planning your budget ensures that any adjustments can be factored into next year’s projections. Brushing up on your understanding of workers’ compensation is helpful, too.

11. Plan Your Budget and Goals for Next Year

Review this year’s financial performance and set a plan for growth. Adjust your budget, assess cash flow, and define revenue targets. Completing tasks like reviewing benefits and preparing for audits first provides more accurate information for next year’s planning.

12. Administer Year-End Bonuses

If you offer bonuses, ensure they are processed in time for tax reporting. Consider whether to distribute bonuses as cash or other incentives. Factoring this into your budget planning ensures you manage cash flow effectively. Read more about best practices when offering year-end bonuses here.

By following this year-end accounting checklist, you’ll stay organized, minimize tax burdens, and start the new year with confidence.

Contact us at JLS Accounting to discuss how we can help you maintain a strong financial foundation.