Year-End Accounting Tips for Small Businesses

This year has had its share of ups and downs for many small businesses with new government funding, relief packages for businesses, relief packages for employees, new tax incentives, tax incentives that went away, delayed filing and more. Now it’s the end of the year and where do you start? Start with the basics first and then work through the rest. Still don’t know where to focus? Our team covers some tips for tackling year-end accounting and tax prep below.

General Year-End Accounting Tips

There are some general things that small businesses can do as we near the end of the year. Some of those things include the basics of making sure that all your invoices are sent out as well as payment received. The fewer transactions, bills, invoices and payments that straddle the year-end the better. It can be all too easy for small businesses with team members wearing multiple hats to enter a date incorrectly and quickly attribute it to the wrong year. Below is a list of some common general small business accounting tips for the end of the year:

  • Record All Transactions & Sales
  • Conduct a Reconciliation of your Bank Account
  • Check Your Accounts Receivable and Invoices
  • Check Your Accounts Payable
  • Perform an Inventory Count
Payroll, W-2s & W-9s

Of course, you are handling your small business payroll by paying your employees, managing tax payments and benefits all year long. Now that it is the end of the year it is vital to take a few additional steps. The most important thing to do is to verify employee information before issuing Form W-2. A missing or incorrect name or Social Security number can lead to penalties for your small business. Make sure all paychecks from the year have been recorded. Be sure to include all payments for commissions and bonus pay.

Many small businesses pay a year-end bonus to employees. Your planning is essential when it comes to this bonus payment. Be prepared for lead time to ensure timely delivery and the opportunity to review the accuracy of the checks before the check date. Remember, a bonus will often push an employee’s pay into a higher tax bracket for that pay period. You should consider the tax implications for the employee on a local, state, and federal level before running the bonus payroll.

You also need to look at your contractors and make sure that all W-9s are accurately processed. Typically if your small business works with a contractor and has paid more than $600 in a year you will need to distribute a W-9 to them as part of your year-end practices. Often this small step is overlooked by small businesses. If you aren’t sure what to do or how to handle this, your small business accounting firm will be able to help you work through this as part of your year-end accounting efforts.

Update Assets & Depreciation

Your business assets and their value is an area for a small business owner where a CPA or accounting firm may be your biggest resource for getting this information correct. Before you close the books, make sure all of your fixed assets are up-to-date. Add any new fixed assets that you may have forgotten and it is important to note that a fixed asset is a long-term asset with a life that lasts longer than a single fiscal year.

Not sure what an asset is? An example of an asset would be, if your company purchased new computers, these would be considered fixed assets rather than expenses. Even though you paid for them as an expense, a computer’s life lasts longer than a single year, which makes it a fixed asset.

For all of your fixed assets, you will need to run depreciation for the year. According to Investopedia, depreciation is an accounting method of allocating the cost of a tangible or physical asset over its useful life or life expectancy. Depreciation represents how much of an asset's value has been used up. Depreciating assets helps companies earn revenue from an asset while expensing a portion of its cost each year the asset is in use. If not taken into account, it can greatly affect profits.

If you need help understanding these concepts, your small business accountant can also assist you with running depreciation, or you can run depreciation yourself using accounting software programs like QuickBooks.

COVID-19 Government Assistance, Grants, Loans and More

If your small business is like many others that have survived 2020, you may have leveraged some of the government assistance, grants or loans to keep your business afloat. With year-end upon us, documentation for each of these programs will be an integral part of your tax filings this year. Portions of your PPP may be forgiven, other portions may need to be written off and others still may impact your total taxable revenue. Additionally, with the newly signed COVID-19 relief bill there are many other stipulations for usage, reconciliation and tax implications. Here is a link to a great article covering the new COVID-19 relief bill along with important points of the previous bill.

Working with a small business accounting firm will be your biggest asset when using these assistance programs along with reconciling them with your books. An accounting firm with knowledge of your business and these new government programs can be instrumental to your future success. Additionally, working with an accounting firm that specializes in your specific industry may also prove invaluable to your business.

If this all leaves you scratching your head or leaves your mind swirling, then it might be time to work with a small business accounting firm to help with your end of year accounting and taxes. The team at JLP CPAs provides general small business accounting and tax services as well as specialized accounting services for a variety of industries. Finish your year strong and contact one of our small business accounting specialists today.