Year-end accounting checklist for small businesses

Control List

By Pam Bingham

Whether you’re a new business owner or a seasoned business owner for a while, now is the time to start year-end accounting. To set yourself up for success, it’s imperative to take care of the year-end accounting before the new year rolls around.

This year-end bookkeeping checklist includes three important things small businesses can do to make the process of closing the year-end books and preparing for tax season as easy and painless as possible.

Year-end accounting checklist for small businesses

1. Track income and expenses

Ideally, a business should track its income and expenses throughout the year. This alleviates the majority of heavy lifting associated with year-end accounting and can usually be done very quickly in real time. If it hasn’t already been done, schedule a specific time to get these things in order, as they are imperative for the tax return.

Some of the most important things to track include:

  • Pandemic-related teleworking expenses. Not only do regular incomes and expenses need to be tracked, but as the pandemic has pushed many people to work remotely, there are new expenses associated with this transition that shouldn’t be overlooked. Any new supplies or equipment purchased, such as desks, chairs, routers, etc., should be included in the year-end balance sheet as they are eligible for tax deductions.
  • Real estate sales. Many companies have sold their physical offices or stores over the past year in light of the shift to a digital or remote presence. This should be tracked as income, and the proper paperwork should be tracked from the sale.
  • Large asset purchases. Any item purchased over $2,500 will also need to be tracked for depreciation, in addition to being noted as a business expense. Depreciation should be closely monitored and reported on future tax returns, as this helps you better plan for when it may need to be replaced later.

2. Organize documentation

One of the most important parts of a year-end bookkeeping checklist should be making sure you have all the proper paperwork in order. Your source of truth should be your previous year’s tax return; this will allow you to correctly report this year’s totals and understand how you filed last year to streamline certain steps.

Beyond that, there are a handful of other documents that should be on hand, including:

  • Loan documents. More than 6.7 million Paycheck Protection Program (PPP) Loans were approved in 2021. For many business owners, this may have been their first time accepting a loan, so documents are needed for tax filing. It should also be noted whether the loan was canceled and what it was used for specifically.
  • Rental documents. While many companies have left their physical spaces in 2021, others have chosen to keep them. In addition to property rentals, some businesses may have rented equipment or supplies that also need to be accounted for.
  • Training documents. If you started a new business this year, it’s important to find your founding documents as they will tell you how you file your taxes. In these documents you should find out (if you are not sure) your status, whether it is a C corp, LLC or otherwise. Even if you have been established for a few years, it is always useful to keep these documents handy.

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3. Manage inventory

For many businesses, the end of the year also means it’s time to take a holistic look at inventory. Inventory management is therefore the third important item on our year-end bookkeeping checklist. This is not only important after a busy holiday period with many products sold, but it helps to step back and look at the performance of the business throughout the year.

While you can track all of your inventory at the end of the year, it’s more beneficial to do so throughout the year to streamline your accounting and keep a better pulse on the business.

Due to the pandemic, many businesses have taken an omnichannel approach to selling, selling through various online channels like Amazon, Etsy, physical stores, their own websites, social media, etc., seeking to meet consumers there. where they were. While this may have allowed owners to reach more customers, it also created additional touchpoints for tracking inventory.

Why is inventory tracking important? Because your inventory has a valuation and can be converted into a cash amount, it is therefore considered an asset. For this reason, your inventory must be tracked properly for tax reporting. As mentioned earlier, you should have your incorporation documents handy – or know what your corporate status is – as this indicates how your assets are treated when filing your taxes.

The importance of good bookkeeping

It’s been a tough year, but by keeping control of your accounting, which can provide you with a wealth of data, you’re sure to make good business decisions for your business during the year.

RELATED: Year-End Trade Compliance Checklist for Entrepreneurs

About the Author

Posted by: Pam Bingham

Pam Bingham is a professional advisor at Intuit, EA, MAFM and owner of PB Tax and Accounting Services. She is also the manager of QuickBooks Live.

Company: Intuit QuickBooks
Connect with me on Twitter and LinkedIn.


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