Lunchtime Topic ft. Tanita Daniels: Closing Your Books for Year End

It’s that time of year again, and we are not talking about the holidays,…time to close your business books for the year. Do you have all of your loose ends tied up? Do you know everything you need to do to get the most out of your financials for 2020? End this year on a high note with a Lunchtime Topic from Tanita Daniels, EA and Founding Owner of StraightPoint Accounting Solutions.

1. Make certain all business expenses are accounted for and categorized

  • Find a software accounting system that works for you (Quickbooks, Xero Accounting Software, etc.).
  • Have a separate business expense bank account. This keeps everything organized.
  • If you are a sole proprietor (schedule c), and using Quickbooks, you can actually swipe left or right to categorize your transactions as business or personal. If you are not using a software, just make sure you’re keeping up with your business expenses in an organized manner and digitally if possible. This will allow you to easily and quickly send over information to your tax professional at the end of the year.
  • Keep all of your receipts for your business expenses. For instance, if I go to Walmart and get copy paper for my business, if you look at my bank account, you will see this expense. But, you know what you’ll also see? Groceries from Walmart. This is why I keep the receipt so that I can prove this is exactly what I purchased from Walmart and showcase that it is a legitimate business expense separate from my groceries. This is very important in case you are audited. 

2. Reconcile bank and credit card statements

  • Why do this if you are using a system? There can easily be errors with the software system you choose to use. It’s good to be able to refer back to your bank and credit card statements as a final, complete record.
  • Reconciliation should be done on a monthly basis. This is the best practice to make sure you capture all of your expense transactions accurately. Remembering each and every transaction at the end of the year is hard for anyone!

3. Update your mileage log if you have not done so

  • This ensures that you are audit-ready. You need to be able to prove your mileage is accurate to auditors and not just some made-up number.
  • It’s hard to remember your mileage from one month to the next. There are a lot of tools to help you do this. Quickbooks has a section on their software that will help you do this more easily.
  • You can also write down your starting mileage and ending mileage in these tools.
  • Track both your personal and business mileage. Your tax return will require both numbers.

4. Complete all customer invoicing for the year and track unpaid customer invoices 

  • Make sure you have invoiced all of your clients accordingly. This will help you know how well you have done for the year.
  • As for unpaid customer invoices, if a company that owes you has gone out of business and will not pay you, you can write these off as a tax deduction. Also, you’ll want to rectify your books to reflect this so you don’t have outstanding invoices showing. 

5. Process W-2s and 1099s

  • Make sure that you have processed all W-2s and 1099s. You’ll want to do this after you have processed your last payroll for the year. 
  • W-2s normally must be processed by Jan 31st, but next year the 31st falls on a Sunday so the deadline is Feb 1, 2021 this coming year. They must be stamped and mailed to employees by that date. 
  • The 1099 NEC has the same filing deadline as the W-2s .
  • If you’re able to file electronically, I highly recommend as it makes this process much easier. The IRS is backed up on 2019, so this helps speed the process up a little bit.

6. Account for your inventory

  • Make sure you account for your inventory and make any adjustments before you close the books for the year. 

7. List your fixed assets

  • Fixed assets are buildings, land, equipment – anything that has a useful life of greater than one year. 
  • Tax preparers and bookkeeping services will ask you for this because depreciation will need to be reported. 
  • In the case of 2020, if you sold a piece of equipment, you will need to update this list to reflect either a gain or loss on the sale.
  • If you purchased equipment, this will help you know what tax deductions you should be including. 

8. Reporting and payment of estimated taxes and sales taxes 

  • Make sure estimated taxes have been filed and are paid by Jan 15th 
  • Sales tax is based on state governance and should be filed and reported on your books based on the date your state provides.

9. Run your financial statements – Balance Sheet & Profit and Loss Statement

  • Review Balance Sheet and Profit and Loss statements are extremely important. You’ll want to have these for taxes, but also make sure that you are reviewing these throughout the year. This data will help you analyze your financials and compare your revenue and expenses to determine whether you are operating in a profit or a loss. Running a business from just the money in your bank account doesn’t reflect whether you are operating at a loss or not. The Profit and Loss statement will show this. Look at P&L every month. For example, around hurricane season, a roofer may not be doing much work. This will show trends and what to account for throughout the year and different seasons. You’ll want to make notes of why certain months are harder than others.
  • The Balance sheet shows you your assets, liability and equity. This will help you understand how you should move forward, who you owe, and ultimately plan for the future. This should be part of your monthly closeout and should lead how you make decisions for your business. 

10. Planning for 2021

  • I believe one of the key things for accounting is being proactive. Planning for your upcoming year is crucial. Now is the time for anyone who has been BYI-ing (doing your own bookkeeping) to figure out the next steps. 
  • If you see where you can outsource your bookkeeping and get a professional to review your financials, do that. You could also have an accountant look at your books every quarter so that you are not waiting until the last minute of 2021 to compile everything when you really need to be looking at your numbers all along.  
  • Prepare a budget – make sure to look back at 2019 and 2018. 2020 was an unusual year so may not be a completely good guide for 2021. Also, it will be good to be able to compare your projected budget to the actual budget in 2021 to figure out where you are over- or underspending. 

To learn more about closing your books for the year end, reach out to Tanita Daniels at

About Tanita:

Tanita Daniels, EA is the founding owner of StraightPoint Accounting Solutions LLC, a financial management company founded in 2018 that helps businesses, nonprofits, and entrepreneurs streamline their financial governance. She provides clients with outsourced bookkeeping and tax preparation services as well as financial systems management. Tanita gained sixteen years of nonprofit and corporate-based accounting experience, rising from intern to financial director. She honed skills in full general ledger accounting, accounting system implementation, government reporting, financial analysis and reporting, fixed assets, contract/grant management, accounts payable, payroll, and procurement. Tanita is a credential through the IRS as an Enrolled Agent.