December is almost here, so now's the perfect time to make sure your year-end financials are in order.
Whether you're a sole proprietor, LLC, or S-Corp, getting your financial house in order before January 1st can save you headaches (and money) during tax season.
Here's your step-by-step checklist to close out the year strong: plus some special considerations if you're operating as an S-Corporation.
1. Gather and Reconcile All Financial Records
Start with the basics:
- Collect all receipts, invoices, and bank statements from 2024
- Reconcile every bank account and credit card
- Match transactions in your accounting software to actual bank records
- Review and categorize any uncategorized expenses
- Close out accounts receivable (chase down any outstanding invoices)
- Settle accounts payable where possible
Pro tip: If you're missing receipts, check your email for digital copies or contact vendors for duplicates. The IRS won't accept "my dog ate it" as documentation.
2. S-Corp Special: Verify Reasonable Salary Requirements
If you're an S-Corporation, this step is crucial:
- Review total wages paid to owner-employees for 2024
- Ensure salaries meet IRS "reasonable compensation" standards
- Compare your salary to industry benchmarks for similar roles
- If under-paid, consider a year-end bonus to bring wages up to reasonable levels
- Document the basis for salary decisions (save industry salary surveys, job descriptions)
S-Corp owners: The IRS expects you to pay yourself a reasonable salary before taking distributions. Getting this wrong can trigger penalties and additional payroll taxes. When in doubt, err on the side of paying slightly more rather than less.
3. Make Strategic Asset Purchases Before December 31st
Consider these year-end purchases:
- Business equipment that qualifies for Section 179 deduction (up to $1,160,000 for 2024)
- Office furniture and technology upgrades
- Vehicles used for business (check bonus depreciation rules)
- Software subscriptions paid annually instead of monthly
Important: These purchases must be placed in service before December 31st to count for 2024 taxes. Just ordering something in December doesn't cut it: you need to actually receive and start using the asset.
Small business bonus: Many assets qualify for 100% bonus depreciation, meaning you can deduct the full cost in year one rather than spreading it over several years.
4. Accrue Payroll and Related Expenses
Get your payroll house in order:
- Calculate and record any unpaid wages for work performed in 2024
- Accrue vacation pay that employees have earned but not taken
- Record employer payroll tax obligations
- Set aside funds for year-end bonuses if planned
- Review and update employee classifications (exempt vs. non-exempt)
Don't forget: If you pay employees bi-weekly and your last 2024 payroll falls before December 31st, you may need to accrue wages for work performed but not yet paid.
5. Pull Forward Bills and Manage Cash Flow
Strategic bill timing can impact your tax situation:
- Pay outstanding 2024 business expenses before December 31st
- Prepay January 2025 expenses if it makes tax sense
- Review subscription renewals and annual service contracts
- Consider prepaying professional services (legal, accounting, consulting)
- Stock up on necessary business supplies
Cash flow reality check: Only prepay expenses if you have the cash flow to handle it and if the tax savings make sense. Don't create a cash crunch just to save on taxes.
6. Review and Optimize Tax Strategies
Last-minute tax moves:
- Maximize retirement plan contributions (401k, SEP-IRA, Solo 401k)
- Consider Roth IRA conversions if appropriate
- Harvest investment losses in business accounts
- Review estimated tax payments for accuracy
- Gather documentation for R&D credits or other special deductions
S-Corp owners: Remember that S-Corp income flows through to your personal return, so coordinate business and personal tax planning.
7. Organize Tax Documents and Records
Get your paperwork ready:
- Compile receipts and supporting documents by category
- Prepare depreciation schedules for business assets
- Gather 1099s for contractors (due January 31st)
- Review mileage logs and home office calculations
- Organize charitable contribution records
- Create backup copies of important financial files
Digital organization tip: Scan physical receipts and store them in cloud-based folders organized by month or expense category. Your future self will thank you.
8. Plan for 2025 Success
Use this year's data to set up next year:
- Analyze which business expenses provided the best ROI
- Set realistic revenue and expense budgets for 2025
- Review and update business insurance coverage
- Schedule quarterly estimated tax payment dates
- Plan major purchases for optimal tax timing
Consider: If 2024 was a high-income year, you might want to accelerate expenses. If you expect higher income in 2025, it might make sense to defer some income where possible.
Red Flags to Watch Out For
Common year-end mistakes that trigger IRS attention:
- Massive last-minute expense deductions that seem unusual
- Personal expenses mixed with business expenses
- Round numbers that look estimated rather than actual
- Missing documentation for large deductions
- Inconsistent record-keeping between years
When to Call in the Professionals
Consider reaching out to your accountant if:
- Your business had significant changes in 2024 (new entity type, major expansion, etc.)
- You're unsure about S-Corp reasonable salary requirements
- You have complex asset purchases or depreciation questions
- Your estimated tax payments were way off from actual income
- You want to discuss tax strategies for 2025
The Bottom Line
Year-end financial cleanup doesn't have to be overwhelming. Start with the basics: reconcile your accounts and gather your paperwork. Then tackle the strategic stuff like asset purchases and payroll planning.
For S-Corp owners: Don't skip the reasonable salary review. It's one of the most common areas where the IRS focuses attention, and getting it right protects you from penalties and additional taxes.
For everyone else: Focus on accuracy over perfection. It's better to have clean, well-documented records than to rush through and make mistakes you'll have to fix later.
Need help sorting through your year-end financials? Books on the Go CPA Firm specializes in helping small businesses navigate year-end planning and tax preparation. We make the complicated stuff simple, so you can focus on running your business.
Start your checklist today: your January self will thank you when tax season rolls around.
