Maybe you’ve always considered hiring a bookkeeper to handle your end of year tax preparation but just haven’t gotten around to it this year…. and yet, the end of the year is here!
Never fear, we’ve put together a handy checklist of how to prepare for the end of the year based on our own internal checklist for our client’s pre-tax preparation. Note –
a bookkeeper is different than a CPA and does different work. CPAs will ultimately prepare your income tax returns for you, but there is always work that needs to be done before handing your finances over to a CPA. Remember, the more work your CPA does, the higher your bill will be!
Here’s what to do:
- Run a Profit and Loss, Balance Sheet, Accounts Payable, and Accounts Receivable reports and see if any glaring problems stand out (an invoice did incorrectly in your accounting system, etc). If you catch something off the bat its easiest to fix it before really diving into the finances.
- Reconcile all credit, bank account, and loan accounts in your system. Check out this resource if you’re wondering what reconciliation is and how you can do a reconciliation of your accounts.
- Verify that all your petty cash transactions are correctly recorded.
- Verify that all balances on your Balance Sheet are correct and have supporting documentation. For example, the checking account balance on your monthly statement should tie out to the amount that shows on your balance sheet.
- Check: Did you pay anything on your personal accounts for business purposes? Gather receipts and records. You should pay yourself a reimbursement and categorize it to the proper expense categories/accounts.
- Check: Did you pay anything on your business accounts that were for personal purposes? Move those transactions to a proper equity account and make a note of it for your CPA. Try to avoid doing that in the future!
- Check: Is there anything past due (either accounts receivables or accounts payables) that need to be paid? You’ll need to decide if you can tie up these loose ends before the end of the year. Pay the vendors in full for your outstanding payments if cash flow allows and send reminders to those who owe you money.
- Do you have inventory? If so you’ll want to do a manual check of your inventory and ensure it matches up with your systems. Because of the somewhat imprecise nature of inventory, even an inventory client of ours whose inventory we’ve been managing throughout the year has to do this manual check. It’s a pain, but it’s just one of the necessary evils of inventory – sometimes things fall through the cracks. You’ll need to determine the value of the things you have not sold and written off any unsellable inventory.
There are a few other complicated year-end accounting maneuvers that often need to be done on the books, like journal entries for depreciation and accruing prepaid liabilities, but it is best to consult an accountant on those before doing them yourselves. (Of course we do always think it is best to consult an accountant/bookkeeper before changing up your books and we always recommend our clients call us before making adjustments. So go ahead and follow the above steps).
There are a few other things you need to make sure you do in preparation for tax season.
- Send your employees payroll forms (e.g. the W2)
- File 1099-Misc. Forms
This can all seem like a pretty daunting task and it is usually best to not try to do it all on your own. Reach out to a
bookkeeping team for the upcoming year, and they can help you plan some financial forecasting for the upcoming year and keep up with the books all year round.