Just like you prepare your home or car for the winter, you also need to do some annual tasks to get your financials ready before the new year gets hectic. Completing these items at the start of the new year will help save you time and hopefully prevent a headache come tax season.
- Reconcile all your checking and savings accounts. Hopefully, you already do this monthly during the year, but if not, it is time to reconcile your bank and credit card accounts. There should not be transactions that did not get reconciled, except checks that have not cleared the bank. This ensures you have captured all your expenses for the year.
- Run your P&L by month. Run a Profit & Loss or Income Statement report for the entire year, sorted by month. See if there are any transactions that stand out or are missing. Does the report show rent was paid every month? Are sales oddly elevated one month? Check that transactions are categorized correctly and recategorize as appropriate.
- Find all your loan balances. Confirm that every payment made to loans was categorized correctly towards the loan. Watch for the end-of-year document from your loan provider that will tell you how much interest you paid in the year.
- Confirm that all bonuses & gifts given to employees are run through payroll. Payroll issues must be cleaned-up during the current year so W-2s and payroll taxes are correct. All gifts over $20 should be run through payroll.
- Run a YTD Payroll Summary report from your Payroll Company. You want to ensure that you are recording the Gross Wages (not Net) in your P&L to maximize your expenses for the year.
- Verify that all Sales Tax and Child Support due to the state has been paid. There are fines and penalties for late payments, so get those responsibilities cleaned-up for year end.
- Review your fixed assets. Did your business purchase a new computer, car, oven, or trailer? Did you pay for significant improvements to your office or warehouse? Did you sell or dispose of an asset? Purchases over $2,500 should be recorded on your Balance Sheet as a fixed asset so they can be depreciated over time.
- Adjust your Inventory. Inventory is included on your Property Rendition as of January 1 and any large swings from last year should be investigated. Was there theft, damage, or are you carrying the appropriate sized inventory for your business?
- Enter last year’s tax adjustments. CPAs often send Journal Entry adjustments after they complete your tax return. Those adjustments need to be entered into your accounting software, dated 12/31 of the previous year, so your financials match the data reported on your tax return.
- Determine if you need to send out any 1099s for the year. Many contractors that are paid more than $600 a year from your business are required to receive a 1099 NEC. Landlords and attorneys should also receive a 1099 MISC. You can run an “Expenses by Vendor Summary” report for the year and see which vendors may qualify.
- Create a designated location to gather all the end-of-year tax documents that you will receive. Your CPA will ask for all the tax documents you receive at year-end, so make it easy to find them.
End-of-Year preparation of your financials will simplify your activities for tax season and is also a great way to review the current year and set goals or make adjustments for next year. ADKF is available to assist with your end-of-year activities by providing training or completing these tasks for you!