As the calendar year winds down, it’s time for more than just holiday parties and office potlucks. It’s also time to close your books and prepare for tax season. A little attention now saves a lot of stress later. Think of it as giving your business a year-end tune-up before the new year begins.

Here’s a year-end accounting checklist to wrap up your financial year strong and start fresh in January.

Reconcile Your Accounts

Before anything else, make sure your books reflect reality. Reconcile your bank accounts, credit cards, and loans to ensure you’ve accounted for every transaction and that the balances match your records.

Whether you’re a small business owner or a CFO, you need a clear view of the company’s financial position, and your bank, lenders, and auditors want that, too. Yet according to the Journal of Accountancy, nearly 40% of CFOs don’t completely trust the accuracy of their organization’s financial data.

Unreconciled accounts cause inaccurate financial reports and major headaches at tax time. Your accountant will thank you for staying on top of this one.

Review Accounts Receivable and Accounts Payable

If clients still owe you money, now’s the time to follow up on those outstanding accounts receivable. While you can’t always control when clients pay you, it’s worth picking up the phone or sending a personalized reminder email to try to collect the money before year end.

Likewise, double-check what you owe to vendors or contractors. If you have the cash flow, pay invoices before the end of the year. This step helps cash-basis taxpayers take advantage of tax deductions now rather than waiting until next year.

Clearing up accounts receivable and accounts payable balances ensures your year-end financials accurately reflect your cash position and keeps your relationships running smoothly.

Verify Payroll Records

Your payroll data should match what you’ve reported to the IRS and state agencies. Confirm all employee and independent contractor information (like Social Security numbers and addresses) before issuing W-2s and 1099s.

If you use payroll software, download and store year-end reports. You’ll need them for both tax filing and future audits.

Ask any independent contractors for a new Form W-9 to ensure you have their current information on file. Remember, you don’t need to send 1099s to independent contractors you paid via credit card or third-party payment platforms like PayPal or Stripe. Third-party network transactions and credit card transactions get reported on Form 1099-K.

Review Business Expenses

Go through your expense accounts with a fine-tooth comb at the end of the year. Did you capture every deductible expense? Check for missing receipts or unrecorded payments. Commonly overlooked deductions include mileage, business meals, home office expenses, and software subscriptions.

Check whether you paid any deductible business expenses with your personal funds. For example, did you pay for a business-related app with your personal PayPal account? All of those little transactions can add up.

Think of it as a mini treasure hunt, with every legitimate expense lowering your taxable income.

Take Inventory

If your business sells products, schedule and perform a year-end inventory count. Reconcile physical stock with your records to identify shrinkage, damage, or miscounts. The cost of goods sold (COGS) calculation relies on accurate inventory data, and errors here can skew both your financial statements and your tax liability.

Review Financial Statements

Your balance sheet, income statement, and cash flow statement tell the story of your business’s health. Look for trends. For example, did revenue grow as expected? Are expenses creeping up? Is cash flow steady or unpredictable? Year-end is the perfect time to analyze your financial reports and cash flow trends to see what went well, what didn’t, and where you can improve.

Update Depreciation and Fixed Assets

Review your fixed asset list to ensure you’ve capitalized and depreciated all equipment, furniture, and vehicles accurately. If you’ve disposed of or replaced assets, remove them from your books. This helps you claim accurate depreciation deductions and avoid overstating your total assets.

Document Your Odometer Reading

If you use your personal vehicle for business, the IRS allows you to deduct mileage, but only if you can prove it. The easiest way to stay compliant is to snap a photo of your odometer reading right around January 1st each year. This provides a clear record of your total miles driven, making it simple to calculate business versus personal mileage later.

Whether you track mileage manually or use an app, this one quick photo can save you hours of scrambling at tax time.

Photograph Your Home Office Space

If you work from home and claim the home office deduction, take a few photos of your workspace at year-end. These photos serve as helpful documentation showing that you use the space regularly and exclusively for business purposes, which is crucial for claiming the deduction.

You don’t need to stage it like a real estate listing. Just capture clear images that show your setup. Store them with your tax records for easy reference. This simple step helps substantiate your claim and gives you peace of mind if IRS auditors ever come knocking.

Plan for Taxes

Don’t wait until April to think about taxes. Meet with your tax advisor to estimate your tax liability and explore last-minute tax-saving opportunities. For example, you may want to make deductible purchases, contribute to a retirement plan, or pay bonuses before year-end. Smart timing can make a meaningful difference in your bottom line.

Year-end is also a good time to increase or reduce any estimated tax payments due in December (for C corporations) or January (for sole proprietorships and pass-through businesses).

Begin to gather tax documents, including your trial balance, copies of 1099s and W-2s, bank statements, and other financial records. That way, you won’t be scrambling to locate critical financial documents with next year’s tax return deadline looming.

Review Business Structure and Benefits

As your business evolves, so do your needs. Evaluate whether your current entity structure (LLC, S corporation, partnership, etc.) still makes sense from a tax perspective. Also review employee benefits like health insurance, retirement contributions, and flexible spending accounts. A quick review now could save you from overpaying taxes or missing valuable deductions later.

Set Goals for the Coming Year

Numbers tell a story, but they also set the stage for your next chapter. Use your year-end review to define new financial and business goals. You may want to boost profitability, reduce debt, or increase cash reserves. Establish measurable targets and work with your accountant to build a plan to accomplish your goals.

Review and Update Client Information

Before year-end, take a few minutes to review your client database and confirm that contact details, mailing addresses, and billing information are up to date. Outdated or incorrect records can lead to missed invoices, misdirected communications, or even payables fraud.

If you use customer relationship management (CRM) software, run a report to identify any missing or outdated fields. While you’re at it, note any clients who’ve moved out of state or shifted service needs. These updates can impact how you handle taxes and contracts next year.

Back Up and Secure Your Data

Your books and records are valuable assets. Back up your accounting files, tax documents, and payroll reports to a secure cloud or external drive. Cyber threats and data loss happen more often than anyone likes to admit, and it’s better to be prepared than panicked.

After the year end closing, officially close the books to lock in prior year transactions. This prevents accidental changes to your accounting software.

Meet with Your Accountant or Financial Advisor

Even the most diligent business owners and finance and accounting teams benefit from a second set of eyes. Schedule a year-end meeting to review your financials, discuss tax strategies, and identify growth opportunities. It’s one of the most productive hours you’ll spend all year.

Year-end financial cleanup might not be as fun as celebrating with champagne, but it sets the foundation for a stronger, more profitable year ahead. If you need help completing this year-end checklist, Countless can help. Reach out to start the new year organized and ready for growth. Then give yourself credit for running a business that’s not just surviving, but thriving.