December has a way of arriving before you’re ready for it. If you’re a small business owner managing your own finances, this time of year means closing out one set of books and getting ready to start fresh. If you’re not prepared, it’s easy to end up scrambling.
I put this checklist together to make the process go a little more smoothly. Work through it before the year ends and you’ll head into January feeling a lot more prepared.
General Bookkeeping
Everything else on this list goes more smoothly when your books are as current as possible. The best place you can start is by entering as many transactions into your accounting software or spreadsheets as you can.
Next, reconcile all your bank and credit card accounts through November, and look up your current loan and line of credit balances at your bank.
Payroll
If you run W-2 payroll for yourself or your employees, there are a few things that need your attention before the year wraps up. First, verify all your employee addresses. You’d be surprised how many people move in a year! Calculate any year-end bonuses, and start getting ready to send out W-2s.
One thing that trips people up here. Employees can only receive their W-2 electronically if they’ve opted in ahead of time. If they haven’t, you’ll need to mail them a printed copy. If you’d like to avoid that, you should be able to collect consent for electronic W-2s through your payroll software.
Contractors
If you pay independent contractors, make sure you have a completed W-9 on file for each one before year-end. Contractors are people or businesses you hire to do work for you who set their own rate and invoice you for payment, as opposed to employees you put on payroll. If you’re not sure which category someone you hired falls into, you may find our blog about form W-9 helpful.
You’ll need the information on your W-9s to issue 1099-NECs in January, which is required for any independent contractor you paid more than $600 during the year.
If you haven’t gotten a W-9 from someone you’re already working with, go ahead and request it now. Don’t wait. You can technically submit a 1099 without a tax identification number, but the IRS will flag it. In some cases, they can even hold you responsible for the contractor’s unpaid taxes, which is a headache nobody needs. Getting the W-9 upfront is always the easier path.
Meet With Your Tax Preparer
I can’t stress this one enough. Don’t wait until after the new year to connect with your tax preparer, or find one if you don’t have one. Year-end is when decisions still have time to matter, and a quick conversation now can save a lot of headaches during tax season. Your tax preparer can help you understand where you stand, what documents to gather, and whether there’s anything worth addressing before December 31st.
And if we handle your bookkeeping, your records are already organized and ready to go. Just reach out and we’ll get you what you need to bring to that meeting.
Think Twice Before Making a Large Purchase “For the Tax Break”
This one comes up every single year, and I get it. The logic seems sound in the moment. A business owner hears that a purchase might be tax-deductible and decides to spend money before December 31st to get the write-off. Sometimes that actually makes sense, but a lot of the time it doesn’t.
Here’s why. A deduction just reduces your taxable income, not the cost of the purchase. Spending $10,000 to save a fraction of that in taxes is rarely the win it feels like, because in the end, you still spent the $10,000. Before you make any large purchase with taxes in mind, please talk to your tax preparer first. We also wrote a blog about tax-deductible business expenses, and it’s a good one to read if you’d like to learn more.
Ready to Head Into the New Year With Confidence?
Every business is a little different, and this list is just the starting point. If you have questions about your year-end financials, I’d love to help. Schedule a free consultation and let’s talk through what your books need.