Your Year End Bookkeeping Checklist
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You’ve officially survived the retail holiday rush, and you’re onto planning your goals & plans for the coming year. I don’t know about you, but this is my favorite time of year. It’s a time to look forward with anticipation at what’s to come, but also a time to reflect on all the success (and failures) that you experienced in the past year.
One other important piece is to ensure you take some time to wrap up your prior year bookkeeping & tie it all up with a pretty bow for your tax preparer. Today’s post is going to walk you through a year end bookkeeping checklist for you to complete. Some of these must be done before January 31st, but ALL of these should be done before you file your annual income tax return.
Confirm every transaction has been recorded
If you exclusively use business bank accounts & credit cards, this piece can be relatively simple. By connecting your bank & credit card feeds to a bookkeeping software (like QuickBooks), these transactions will all automatically pull into your software. All you have to do is make sure you’ve told QuickBooks what they are for. At the end of the year, make sure that every transaction from the prior year has been categorized, and there’s nothing outstanding in your bank feeds.
This is also a great time to review all transactions in any personal accounts. Sometimes, it’s easy to accidentally pay for a business expense with the wrong card, and then those transactions won’t automatically pull into your bookkeeping records. But, even if you accidentally pay with your personal credit card, you can still claim it as a business expense! Make sure all these transactions are captured as well and added to your bookkeeping records.
Confirm all assets & liability accounts have been reconciled
It’s relatively easy to reconcile (or match) your bookkeeping records to bank & credit card statements, and there’s a great reconciliation tool right in QuickBooks to help you with this. But, did you know that EVERY number on your balance sheet under your assets and your liabilities should be able to compared against some type of document or record?
For example, all assets are things you own: the money in your bank accounts & payment processors can be compared to statements & your payout reports. Inventory should be adjusted to match your physical documented inventory counts (more on this later).
Other large dollar purchases (buildings, upgraded shelving & display materials, etc…) should be verified against receipts & purchase agreements.
On the other hand all liabilities (things you owe) can be matched to reports or loan documents as well. Sales tax you owe can be matched to your point of sale system. Credit card balances matched to credit card statements. Loan balances can be compared with year end loan documents.
Work your way down your balance sheet & verify that each number under your Assets & Liabilities are correct to help double check that your financial records are accurate for taxes.
Take a physical inventory count
As close to the 1st of the year as you can, you need to physically go through your store and document everything you have in your inventory. You will need to report this number on your tax return as part of your cost of goods sold calculation.
Throughout the year, items may be ruined or stolen. By taking a physical count it will allow you to adjust your inventory balance down to match the physical count to capture the cost of these lost items. This will also help capture any errors that may have happened when entering product costs into your Shopify or other store platform to ensure that your cost of goods sold deduction is calculated correctly.
File any required 1099s
As a business owner, you have a responsibility to file an IRS Form 1099 reporting amounts over $600 that you paid via cash, check, ACH, or personal payment processor to any individual or business that provided a service or leased space to your business. This could include amounts you paid a landlord, store owner (if you’re renting space in their store), photographer, model, virtual assistant, bookkeeper, or store cleaner.
As a best practice, I recommend asking any new service providers or a landlord for a copy of their W-9. You can find a blank copy of this document here. The information provided on this form is what you’ll need to file the 1099. Keep in mind that if a business checks the box that they are an S Corporation or a C Corporation, you do NOT need to file a 1099 for them unless they are an attorney.
As part of your tax return, you are required to declare if you made any such payments that require a 1099, followed by another question asking if you filed those required 1099s. If you did not, there will likely be penalties added to your tax due.
The deadline to file these 1099s is January 31st each year, so it’s best to make sure all your prior year bookkeeping is up to date & accurate before this date to make sure you are able to identify all the vendors you need to send a 1099 to.
Ensure payroll tax reports are filed & tax forms sent
If you have employees, you are required to issue their W-2 tax documents by January 31st as well. Along with this there are tax forms (940/941) that need to be filed with the IRS to report to the government what you paid your employees & what has been paid in payroll taxes.
If you use a payroll provider such as Gusto or ADP, they will likely do this for you. However, it’s a good idea to verify with your account manager that they have everything they need to get these done for you.
Completing all of these year end tasks will help you protect yourself against unnecessary fines or penalties, and will help verify that you are capturing all your deductible business expenses to lower your taxable income.
You work WAY too hard all year round to be throwing any extra money at the government in taxes. An organized bookkeeping software with an easy to follow system will help you keep more of your hard earned money in your own pocket! So, work on completing these 5 tasks every January before you file your own income tax return.
Here’s to finding your own version of freedom,
Hi, I'm Megan!
Bookkeeping for the retail industry has some unique complexities that take extra time to manage to ensure accuracy. At Finding Freedom Financial Services, I provide done-for-you bookkeeping services for boutique owners that accurately track these complexities for you so you can have more time and focused energy to dedicate to running your stores. If you’re ready to get your time back, apply to work with me today!