What You Need to Know About Year-End AccountingBy
Plus ways to start thinking about tax prep
The end of the year is a busy time for most wedding pros. Because, between wrapping up your last weddings and ramping up your marketing efforts, there is still a lot to do—even though you’re trying to take some much-deserved time off. And, while you absolutely should be blocking your calendar with some days to think about anything but your business, there is one workday you should also be blocking—a day to take care of your year-end accounting.
So today, we are sharing a bit of a tax prep checklist to help you get ahead of the game for this spring. Read on for the important meetings to schedule, reports to run, and tasks to take care of, and we promise, your future self will thank you.
Schedule a call or meeting with your CPA
If there is nothing else you do after reading this article, we hope you schedule a call with your CPA (Certified Public Accountant). Why? Because tax prep isn’t your area of expertise (it’s theirs), and this is the most important step to take if you want to make filing your taxes in April easier than it has ever been.
“So many folks want to talk about taxes in March because the individual income tax deadline is April 15. In my personal and professional opinion, March is too late to begin a conversation with a tax professional (because they’re busy preparing returns) or to begin to understand your tax position (because it is too late to have an impact on the previous year–it’s over).” – Nadia Anderson, WeddingPro Educator and CPA
After putting a date on the calendar, here are just some of the questions you can ask your CPA.
- What documents, receipts, and reports do you need me to prepare?
- How much should I anticipate owing? And how can I plan to pay for it?
- Do you recommend I reincorporate as a different business entity?
- Is there anything I can do before the end of the year (or by a certain date) to reduce my tax liability?
Pro-tip: Some examples of ways you can reduce your tax liability are contributing to a retirement account, contributing to a Health Savings Account (HSA), investing in your education, and giving to a non-profit organization.
Don’t have a CPA? While it is possible to prepare for and file your own business taxes, there are lots of benefits to having a CPA on your team. They can advise you on financial decisions, are up to date with tax laws, and can help you feel confident that everything you need to file is done so correctly.
“I really encourage wedding pros to consider an accountant as a part of their business dream team. I must stress that it is critical for business owners to build a relationship with an accounting professional who you can reach out to during the year while you’re making decisions to understand how those decisions will impact your income taxes, rather than seeking out a tax preparer who files the forms but can’t help with strategy.” – Nadia
Pro-tip: A CPA is only one of eight people we recommend all wedding pros have on speed dial. Find out the other seven in this article
Make sure all outstanding invoices are paid
The next step after scheduling a chat with (or hiring) a CPA is to pay all of your accounts payable (money you owe) and to get payment on all accounts receivable (money owed to you). The reason this is the first step? It becomes hard to do much of anything else if your books aren’t “closed out” for the year.
Reconcile your books
After you have made sure all of your invoices are paid, the next step is to reconcile your books. This means you compare your bank statements to your bookkeeping records (usually for each month as a defined period of time) and look for any discrepancies. Those discrepancies might be duplicate transactions or transactions meant to be associated with different bank accounts. From there, the best course of action is to work with your CPA or bookkeeper to fix them—if you use Quickbooks, here are instructions from them.
Pro-tip: Reconciling your books is important for a few reasons. Doing so helps you track your cash flow, it can help you identify fraudulent transactions, and it will help you find (and fix) errors in your accounting.
Run financial reports
The next step in your year-end accounting is to run a few reports (but not before you’ve done all of your reconciliation and fix any errors). And there are two reports you want to run—which is easy to do when you have accounting software like Quickbooks or Freshbooks.
Profit and loss – This report is a must-have for tax prep because it shows your total income minus your expenses (which are usually categorized in the report). A P&L is important because it gives you insight as to where you are making or losing money, but it does require you to keep up with your bookkeeping and maintain “clean” books.
Balance sheet – This report shows your assets at a specific point in time. It is a snapshot of what you owe (ex. debt, overhead, accounts payable) as well as what you own (ex. cash, inventory, accounts receivable).
Pro-tip: Looking to have better systems next year? Here are small business software platforms we love.
Start organizing your receipts
If there is one item on this tax prep checklist that requires a bit of effort, it is this one. Because, if you’ve just been storing all of your business receipts in a box (or a digital version of one), you’ll want to get those organized (either by category or date). Our friend and CPA for creatives, Amy Northard, suggests saving all receipts in the categories you see below that are for $75 or more. In addition, she recommends hanging onto them for 3 years’ time (that is how long the IRS can audit you for a particular tax year), and making sure each receipt includes the amount, a date, the place, and the nature of the expense.
- Charitable contributions
- Medical bills
- Traveling and transportation receipts
- Weight-loss program bills
- Smoking cessation program bills
- Prescription receipts
- Sales tax receipts
- Mileage logs
- Gas receipts
- Student loan bills
- Tuition bills
- Mortgage bills or rent receipts
- Childcare bills
- Office expenses
- Self-employment insurance receipts
- Utility bills
Contribute to your retirement accounts
We talked earlier about “doing your future self a favor” and saving for your retirement is the ultimate way to do just that. Some accounts require you to make contributions by December 31st of that year and others by the tax deadline; be sure you consult with your CPA for those deadlines and consider opening one of these retirement account types:
- Traditional or Roth IRA
- Solo 401(k)
- SEP IRA
- SIMPLE IRA
- Defined benefit plan
Pro-tip: If you want to learn more about the different retirement accounts, Nerdwallet has a great article for you to reference.
Request W9s from your contractors
The last thing you should do as a part of your year-end accounting and tax prep is request W9s from each of the contractors you paid more than $600 to during the year. You can download the form to send them here, and it will include the information you need to create and send them a 1099 by the January 31st deadline.
In the mood to close out the year on an even higher note because you’re being proactive about next? Be sure to read this piece to help you set up your business finances for success and use this business checklist to get ahead!
Photo Credit: fizkes / Shutterstock.com
Let's grow your business together!
Start advertising on The Knot and WeddingWire, the top two wedding planning platforms.