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Make Your Year-End Financial Closing Easier than Ever

The year will be over before you know it. Plan ahead so you can enjoy the holidays.

Review open and outstanding invoices and upcoming bills

Help yourself and your tax planning by determining which invoices will be billed before the end of the year, and which will be pushed into the following year. Accrual-basis taxpayers recognize revenue when the revenue is earned, not necessarily when the payment is received. Small business owners should keep close tabs on their final week shipping, delivery, and billing.

Cash basis taxpayers should follow up on outstanding invoices now. Receiving a large payment on the last day of the year could have big tax consequences that weren’t incorporated into your tax plan.

In addition, review your recurring bills and prior year-end bills. Compare them to your tax plan and cash flow, and determine which bills you’ll pay and which you’ll hold until next year. If necessary, contact vendors and request extended terms until the year is over.

Record, categorize, and review business expenses and fixed assets

If you haven’t been practicing proper accounting and large boxes of receipts cover your office, now is the time to get it under control. You likely haven’t done any tax planning if that’s your situation, but there’s still time! Focus especially on balance sheet vs. profit & loss items. Many small business owners doing their own accounting put everything on the P&L as either income or expense, but paying liabilities or taking distributions often confuse people and screw up their self-prepared books. They also miss things like setting up new fixed assets and taking depreciation expenses, impacting taxable income. Organize that paperwork now so you’re not scrambling under the weight of the tax deadline.

If time is tight, focus on separating your business vs. personal expenses. Personal expenses are not deductible, and while running personal expenses through the business can pierce the corporate veil, we all know it happens in the small business world. You need to make sure you’re not counting on deductions that aren’t really there. No one wants to receive a tax return showing you owe more money than anticipated, especially money you no longer have.

Schedule Inventory Count

If you have inventory, you need to count it. If you have a perpetual inventory system in place, you are continuously counting, and thus just need to grab the report at year-end. However, most small businesses use a periodic inventory system, physically counting the inventory as needed. Schedule that count now, and assign the work. Will you be closed the 31st? Count on the 30th!

Reconcile Accounts

You don’t know your numbers are correct if you don’t reconcile your accounts. Reconcile everything on your balance sheet to third party support, such as bank statements, if possible. For the rest, pull together support from whatever systems you have. Look at payroll reports, amortization schedules, fixed asset listings and more. And don’t wait until December! If you haven’t done any reconciliations yet this year, reconcile everything as of October 31st or November 30th. Give yourself a chance to adjust your books while you still have time to make use of tax saving strategies.

Building a tax plan with unreconciled accounts is like playing with fire. At best, you get lucky. At worst, you owe a lot of money.

Don’t Miss W-2 Additions

Health insurance and personal use of company vehicles impact your W-2 as a small business owner. Most don’t know this, but you can’t wait! These funds have to be run through payroll and go on your W-2, which means it has to be done before the year is up. Grab your most recent healthcare invoice and multiply it to get your annual health insurance premiums paid. Then check your odometer, or better yet, the mileage book you’re keeping, and get an estimate for business vs. personal mileage so far this year. Project the remainder of your year and send those numbers to your payroll provider now. They may follow up requesting more information, but at least you got the ball rolling and put it on the payroll provider’s radar.

In addition, notify your payroll provider now if you plan to pay bonuses or max out retirement contributions on the last payroll.

Establish Tax Document Gathering System

While it’d be nice to pull them all now, most tax documents can’t be prepared until the year officially ends, thus you won’t receive them until January or February. But what you can do now is establish an organized system. You’ll likely receive a variety of digital and physical support, and you likely haven’t seen these documents since last year. Start by creating a checklist using your prior year workpapers, and consider if you’ll have any new documents due to life changes. Check items off as they’re received, and then send them in to your preparer as soon as the list is complete.

Do you prefer digital systems? Set up a secure folder, scan all physical support, download all digital support, and upload it to your tax preparer via their secure portal.

TIP: Increase the DPI (dots per inch) on your scanner to the highest setting possible to reduce issues with your tax preparer reading it.

Do you prefer physical systems? Set up a folder, drop in all physical support, and print all digital support. Then mail it or drop it off with your tax preparer.

TIP: Make copies of your support before sending it. Mail can get lost, and you don’t want to call every financial institution and church trying to get 2nd copies during the busiest time of the year.

Working with Haworth & Company, Ltd.

We advise these things because we know they work for our clients. It’s a lot of work, and if you’ve never done this much to prepare for year-end it can be challenging, but that’s why we’re here to help. We want all of our clients to feel good and know where they stand well before tax season even begins. If you want that for yourself, give us a call or stop in at any of our five locations in the Twin Cities and Rochester. Whether you need someone to help you record, reconcile, and compile financial statements or a payroll expert to enter your tricky W-2 additions before the end of the year, you can trust us to take care of you.


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