How to Organize Your Business Finances for Year-End and Tax Filing Success

Year End Preparation

As the year comes to a close, many business owners find themselves juggling the demands of daily operations while also preparing their financial records for year-end. Whether you’re preparing for tax season or reviewing your financial health, having clean and organized books is essential for a smooth transition into the new year. Here’s a step-by-step guide to help you prepare your business books for year-end and for your accountants.

1. Reconcile Your Accounts

One of the first tasks you should tackle is reconciling your accounts. This means reviewing your bank statements, credit card statements, and any other financial accounts to ensure they match your internal records. Discrepancies should be addressed right away to avoid complications when preparing financial reports. Most accounting software can automate this process and help you catch any errors before they become major issues. 

2. Review Accounts Payable and Receivable

Ensure that all invoices have been issued and payments received before the year ends. This will give you a clear picture of your cash flow and prevent any confusion about outstanding payments. For accounts payable, confirm that all bills have been paid and recorded correctly. It’s also helpful to identify any overdue accounts that might need follow-up.

3. Organize Your Receipts and Expenses

An important part of year-end preparation is ensuring that all your expenses are properly categorized and documented. This includes gathering receipts for business expenses, categorizing them by type (such as office supplies, travel, meals, etc.), and ensuring that all expenses are recorded in your accounting system. If you haven’t been diligent throughout the year, now is the time to get organized. Properly categorized expenses can help maximize deductions and streamline tax preparation.

In addition to regular expense tracking, it’s also essential to review the payments made to independent contractors, freelancers, and vendors. If you paid $600 or more to any individual or business for services rendered, you’ll need to issue the appropriate 1099 forms.

• 1099-NEC: This form is used for payments made to non-employees for services, such as consultants, contractors, and freelancers. Common examples include payments to designers, writers, IT professionals, and other independent service providers. Due date: January 31st.

• 1099-MISC: This form is used for reporting other types of income, such as rent payments, prizes, awards, legal fees, and payments to vendors for services like maintenance or repairs. If you paid $600 or more for rent (for office space, equipment, etc.), legal fees, or other miscellaneous services, you’ll need to issue a 1099-MISC. Due date: January 31st for forms filed electronically; February 28th if filed by paper.

Be sure to collect the correct tax information (such as the taxpayer identification number) from each recipient and keep detailed records of all payments made throughout the year to simplify the 1099 preparation process.

4. Prepare Financial Statements

Financial statements give you an overview of your business’ health and will also be crucial for your accountant when preparing your taxes. These typically include:

• Profit & Loss Statement (Income Statement): A summary of your revenues and expenses over the year.

• Balance Sheet: A snapshot of your business’s assets, liabilities, and equity.

• Cash Flow Statement: A report that shows how money is flowing in and out of your business.

These documents not only help your accountant prepare accurate returns but also offer insights into your business performance.

5. Ensure Payroll is Up to Date

If you have employees, make sure that all payroll records are accurate and up to date. This includes verifying that taxes and deductions are properly withheld and remitted to the relevant authorities. Double-check that any year-end bonuses or other compensation have been accounted for. Additionally, ensure that all employee information is current for filing year-end forms like W-2s or 1099s.

6. Review Inventory (If Applicable)

For businesses that deal with inventory, now is the time to take stock and perform a physical count of your goods. Compare this with your accounting system to ensure that the quantity and value match. Adjustments may need to be made if there are discrepancies. Accurate inventory management is vital for ensuring the accurate cost of goods sold (COGS) reporting and tax calculations.

7. Prepare for Tax Deductions

There are often opportunities for tax deductions that you can take advantage of before the year ends. These may include:

• Prepaying expenses for the upcoming year (rent, insurance, etc.)

• Maximizing retirement contributions

• Reviewing and accelerating depreciation on equipment or assets

Consulting with your accountant can help you identify any last-minute tax-saving strategies that apply to your business.

8. Schedule a Meeting with Your Accountant

Once you’ve reviewed and organized your books, schedule a meeting with your accountant to go over everything. Your accountant will help you navigate the complexities of tax preparation, identify areas for improvement, and provide valuable advice on ways to improve your financial processes moving forward.

9. Set Up for the New Year

After all the year-end work is done, it's a good time to start thinking about next year’s financial goals and planning. Consider setting up budgets, forecasting cash flow, and exploring ways to improve your accounting processes for the upcoming year. By staying proactive, you can make year-end preparation a smoother task next time around.

Conclusion

Getting your business books in order for year-end may seem like a daunting task, but with the right organization and preparation, it can be a smooth process. By reconciling accounts, organizing receipts, preparing financial statements, and working closely with your accountant, you’ll be able to ensure your business enters the new year on solid financial footing. Start early, stay organized, and you'll be ready for whatever the new year brings.

For professional assistance with year-end preparation, getting your books setup for the new year, or bookkeeping, LedgerSavvy Solutions is available to support you. Please contact us at 866-GLSAVVY (866-457-2889) or email info@ledgersavvysolutions.com for expert guidance.