Are you ready for it to be tax season? Ready or not, it is just around the corner. December is a great month to get your bookkeeping in order for taxes and add any last-minute tax saving deductions! We all love to save on our taxes!
What can you do at the end of the year to save on taxes?
The biggest thing you can do now is do an end of Year bookkeeping review for those who have been doing their bookkeeping all year long and now, just need to make some final adjustments so they are ready to close their books and do their taxes next month. End of Year Bookkeeping Review is important to make sure you account for everything all year long, and make sure to take advantage of any last-minute write-offs.
Examples of last-minute write-offs that I know are common:
Buy office supplies that you know you will use next year anyway.
Get travel tickets for a business retreat or business conference that you are planning on going to know, instead of waiting until next year.
Job supplies are a great option to buy now and prepare for next year.
Small tools and small equipment that you plan to use within a year and cost less than $500 are a great write-off at the end of the year.
What is not a good last-minute write-off because it should be depreciated over time and will only be able to write off a very small portion this year:
Buying bulk inventory. Inventory counts should be finalized at the end of every year. Then the amount on hand should be listed on the Balance Sheet and not be expensed that year.
Computers, vehicles, large equipment, and other large purchases that should be depreciated over the life of the asset. These too should be listed on the Balance Sheet and will not be expensed the year they were purchased.
If you have questions about good write-offs for your business specifically reach out to your accountant or I would be happy to help with my Ask an Accountant offerings.
What are the steps of End of Year Bookkeeping?
The steps to reviewing your bookkeeping, after you have accepted all transactions, and reconciled all accounts:
Review your Profit and Loss. Especially watch for negative numbers or accounts that seem too high or too low. Best if you could review your Profit and Loss Detail report. Make sure that if you do find changes that need to be made, make them. If you are using QuickBooks Online here is a tip: go to the reports and look up the Profit and Loss Detail. Then review each line item. If there is a change that needs to be made, click right there on the line item and make the change.
Review your Balance Sheet. Make sure all assets and Liabilities are listed correctly. Watch for negative numbers. Make sure your equity for the year is accurate! It is important that you update all assets and liabilities with the current balance. Your assets and liabilities balances should change throughout the year and it is very common for small business owners to only adjust them at the end of the year for taxes, so make sure these are up to date.
Review contractor payments. Collect w9s and send 1099s if needed. If you have paid anyone over $600 by check, cash, bank transfer, Venmo, etc. they need 1099 from you at the end of the year. The most common exceptions for needing to send 1099 is if you paid them by credit card or PayPal, the credit card processing company or PayPal, you paid them is required to send them a report for their earnings for the year. The other common exception is if the contractor is an S Corp or Partnership. They are required to report income regardless and don’t need to be sent 1099. It is always best practice to get a w9 from all contractors before paying them to be sure they understand the terms of your relationship from the beginning.
Collect accounts receivable due. This way you can end the year strong. I highly suggest getting paid on all your accounts so you can end the year strong. Especially if selling your business next year. If you plan to sell soon, it is best to make sure your business looks profitable and is doing well. Ending the year strong is very helpful.
It is a good idea to pay any outstanding accounts payable if possible. This will help you take advantage of all the tax write-offs you can! This is a great last-minute write-off. If you have a bill due in January and you have the funds to pay it, pay it now, so you can write it off this year!
Set aside savings for taxes due! Most small businesses owe taxes at the end of the year. It is the not-so-fun part of being a business owner but is required, so we might as well plan for it now. Ask your accountant to help you decide how much you should start sitting aside now, so there are no surprises.
Would you like a free printable that shows all this information for you to have on hand in your office?
What if you have done your bookkeeping all year long?
You have put off you’re bookkeeping all year long and now it is too overwhelming? I got you covered! You can purchase my Bookkeeping Essentials Course for only $97! It goes over all the best bookkeeping strategies to get your business up to date and keep you running smoothly for months to come!
Bookkeeping Essentials will even teach you how to file your contractors 1099 that you will need to file in January. It is the best course you can buy if your behind and need to do your own bookkeeping. I know money is tight for small business owners this year. That is why the Bookkeeping Essentials is only $97. It is everything you need to get your bookkeeping in order and ready for this next tax season!