As the calendar year comes to a close, businesses should take time to review their books, verify records, and prepare for tax reporting. Staying organized at year-end not only supports compliance with IRS requirements but also makes tax preparation smoother and helps business owners start the new year with accurate financial information.
Below are key annual bookkeeping reminders every business should address before closing the books.
1. Reconcile All Accounts
Reconciling accounts ensures that your books match real-world activity.
At a minimum, reconcile:
- Business bank accounts
- Credit cards
- Lines of credit and loans
- Payroll and tax liability accounts
Pro Tip: Regular reconciliations help to catch errors, duplicate entries, or missing transactions before year-end. Spreading the workload throughout the year will make year-end close and tax preparation far less stressful.
2. Review Income and Expense Categories
Accurate categorization is critical for financial reporting and tax filing.
Year-end best practices include:
- Reviewing uncategorized or miscategorized transactions
- Ensuring expenses are consistently assigned to the correct accounts
- Confirming income is recorded in the proper period
3. Verify Payroll and Contractor Records
Payroll and contractor payments carry additional reporting responsibilities.
Before year-end, confirm:
- Employee wages and withholdings are accurate
- Payroll tax liabilities are properly recorded and paid
- Independent contractors have correct legal names, addresses, and taxpayer identification numbers
These records support the preparation of Forms W-2 and 1099, which the IRS requires to be issued by January deadlines. Please refer to our article “Year-End Reminders for W-2s, Fringe Benefits, and 1099s” for more detailed information.
4. Review Asset Purchases and Depreciation
If your business purchased equipment, vehicles, or other significant assets during the year, those items may need to be capitalized and depreciated rather than expensed.
Action items include:
- Reviewing fixed asset purchases
- Confirming depreciation schedules are accurate
- Ensuring disposals or sales of assets are properly recorded
5. Check Sales Tax and Other Tax Liabilities
If your business collects sales tax or other pass-through taxes, verify that balances are correct.
This includes:
- Reconciling sales tax collected to amounts remitted
- Confirming liability accounts reflect actual amounts owed
- Reviewing filing frequency and due dates
Accurate liability balances help prevent underpayments, penalties, or surprises during tax filing.
6. Run and Review Key Financial Reports
Year-end reports provide insight into business performance and support tax preparation. These reports should be reviewed for reasonableness before closing the year.
Important reports to review:
- Profit and Loss Statement
- Balance Sheet
- General Ledger
- Accounts Receivable Aging
- Accounts Payable Aging
7. Separate Business and Personal Transactions
The IRS consistently stresses the importance of keeping business and personal finances separate.
Before year-end:
- Reclassify personal transactions from business accounts
- Confirm owner contributions and distributions are properly recorded
Clear separation supports accurate reporting and strengthens documentation in the event of an audit.
8. Back Up Financial Data and Close the Books
Once reviews are complete:
- Back up accounting records and supporting documents
- Lock or close the accounting period to prevent accidental changes
Closing the books annually helps to preserve financial integrity.
Final Thoughts
Annual bookkeeping cleanup is more than a compliance exercise—it’s an opportunity to gain clarity about your business’s financial health. Addressing these reminders before tax season reduces stress, improves accuracy, and positions your business for a strong start in the new year.
If bookkeeping tasks feel overwhelming, please reach out to us to see how we can help ensure your records align with IRS requirements and best accounting practices.