Wrapping Up Year End
That time of year is upon us, to get your year end finalized and off to the IRS. While it can seem overwhelming, below I have 10 things every business needs to do in order to do yearly taxes:
1. Count your cash
Count every single penny you have in cash at end of day December 31 or before sales start January 1. Write that balance on your cash log and reconcile if you are off.
You do this for two reasons:
– Every tax return needs to know the amount of cash on hand at end of year (EOY)
– You can generally find missed expenses this way. If you are off by $1000 but remembered you bought product yesterday and it slipped your mind to write it down.. BAM! You almost lost a $1000 write-off.
Even if you do not have hundreds of thousands of dollars in cash on hand, still… count your cash.
2. Count your inventory
This is a fantastic time to reconcile your inventory, too. You get a chance to see what you think you should have vs what you actually have and gives great guidance on areas for improvement.
Doing this also allows you to expense off inventory you no longer have via shrinkage. Another write-off you would have missed!
3. Review your Accounts Payable (A/P)
I definitely recommend reviewing your payable’s at least once a month to make sure no bill got accidentally missed. However, end of year is when you really need to look everything over.
If you use Quickbooks, but do not use the ‘Bill’ feature, this is the one time of year I would use it. Especially if you are on an accrual basis.
Going back over your A/P is also another great way to catch any bills you may not have recorded yet, giving you another write-off.
I also recommend looking over your liabilities. If you have a login to the account that holds your loan, get on there and make sure that those reconcile as well.
4. Review your Accounts Receivable (A/R)
If your company invoices customers, this task is routine. However, doing this at year end gives you a chance to really dig in and touch base with past due clients or possibly find that extra $500 you had after counting your cash.
Seriously, count your cash.
5. Reconcile your bank statements
As soon as your bank releases December's monthly statements for checking, savings and/or any company credit cards. Reconcile those accounts before you hand your books off to the CPA.
Any good CPA will require this to be complete before they start the taxes.
6. Verify your 1099 vendors
The easiest way to do this is upon entering each vendor, click that they are a 1099 vendor. Granted, you cannot go back in time, but this is something to think about moving forward to make your life easier next year.
Even if you diligently applied 1099 status to the appropriate vendors, still go through your chart of accounts and pull up any account that could potentially hold a 1099. Double-checking your work is always a good idea and a part of great practices
7. Verify the 1099’s you receive
Depending on your company structure and what you do, you may be receiving 1099’s yourself. You can be receiving these into February, so keep your eye on the mail.
Always, always, ALWAYS, go through your records and make sure what the customer sent you matches the criteria and is what your records show.
Depending on their accounting practices, the amount on the 1099 may not match perfectly with yours. The first thing you want to do is look at the December prior to the year in question, and the January after the year in question. If the amount can be found there, you are fine. That just means those transactions either got reported in the prior year or will be included in the current year.
If it still does not match, and after thoroughly going through the account, reach out to them and ask how they got that figure. Or if you find out how it was wrong, reach out and nicely explain your findings and request a corrected 1099.
1099’s tend to be a pain in everyone’s side but really allow for mutual accountability, so generally if you are patient and kind with them, they will be patient and kind back. Plus, these are your customers and you have both worked very hard to build a good relationship.. keep it going strong.
8. Reconcile with federal forms received
Every single company is different and can receive different forms. If you get something, look at your books and make sure it MATCHES. Just like 1099’s.
These forms can be interest earned, interest paid, mortgage balances, and insurance forms just to name a few. It is vital that these forms, which get reported to the federal government, match your books and matches what you report to the federal government.
Also, matching these documents helps ensure that they sent it to the correct company. You do not want to have income claimed for you, that you never received.
When things do not align, or have a reason to be slightly off, like 1099’s, that is an easy way to trigger an audit.
And no one wants that.
Also, always provide a copy of these forms to your CPA when it is time to do taxes.
9. Verify and prepare your W2’s
Pull up a list of all your active employees. If you are a small business, you probably know way too much about your employees' personal lives and whether or not they have moved recently.
People almost always tend to forget to update their address with their employer when moving, so save yourself a lot of time and wasting potential postage by just scanning through the list and double-checking with them.
Once everything looks good and the end of year is complete, print your W2s and your W3.
10. Chat with your CPA as to whether you can take any more disbursements
You will hear me say this time and again – your CPA is your greatest tool. Towards end of year, reach out to them and see if it would be a financially sound decision to take a disbursement, or an additional disbursement. It will take 5-15 minutes of your day and you might be able to get more money!
See my post on Reasons Why Your CPA is Your Greatest Asset for more information on why it is important to keep in communication with your CPA.
While a lot more goes into bookkeeping and preparing for end of year, following these 10 things will get your books pretty close to being ready to hand over to your CPA.
Let me know what questions you have or what tricks you use to ease the end of year madness!