End-of-Year Accounting Checklist for U.S. Businesses

As the calendar year draws to a close, U.S. businesses face a crucial responsibility—closing their books accurately and preparing for tax season. The end of the year isn’t just about filing taxes; it’s an opportunity to evaluate performance, correct errors, plan for the future, and ensure regulatory compliance.

Whether you’re a small startup or a growing enterprise, this End-of-Year Accounting Checklist will help you streamline the closeout process, reduce stress, and position your business for success in the new year.

1. Reconcile All Bank and Credit Card Accounts

Why It Matters:

Reconciliation ensures that your records match the statements from financial institutions. Any discrepancy can lead to reporting errors or missed deductions.

Action Items:

• Compare ledger balances to bank statements.
• Investigate and resolve any mismatches.
• Reconcile all credit card, loan, and line-of-credit accounts.

Tip:

Automate reconciliations using your accounting software (e.g., QuickBooks, Xero) to save time and minimize human error.

2. Collect Outstanding Invoices and Follow Up on Receivables

Why It Matters:

Uncollected revenue not only hurts cash flow but can complicate year-end financial reporting and tax deductions.

Action Items:

• Review the accounts receivable aging report.
• Send final reminders for outstanding invoices.
• Consider writing off uncollectible accounts (bad debt) after proper documentation.

Tip:

Offering early payment discounts or flexible terms may speed up collections.

3. Record All Expenses and Vendor Payments

Why It Matters:

Accurately tracking all expenses maximizes deductions and helps in assessing profitability.

Action Items:

• Enter all vendor bills and receipts into your system.
• Match purchase orders and payments to vendor invoices.
• Ensure employee reimbursements are documented and paid.

Tip:

Use tools like Expensify or Zoho Expense to automate expense management.

4. Review and Adjust Fixed Assets and Depreciation

Why It Matters:

Depreciating assets accurately affects your tax liabilities and net income.

Action Items:

• Update the fixed asset register.
• Dispose of or retire unused or obsolete assets.
• Record year-end depreciation for each eligible asset.

Tip:

Work with your accountant to apply correct depreciation methods and tax treatments (e.g., Section 179 deductions).

5. Inventory Count and Valuation (If Applicable)

Why It Matters:

An accurate year-end inventory impacts both your balance sheet and cost of goods sold (COGS).

Action Items:

• Perform a physical inventory count.
• Reconcile inventory records with accounting software.
• Identify obsolete, damaged, or unsellable items and adjust inventory value accordingly.

Tip:

Use FIFO or LIFO consistently, and document inventory shrinkage to avoid IRS issues.

6. Verify Payroll Records and File Year-End Forms

Why It Matters:

Payroll mistakes can result in penalties and employee dissatisfaction.

Action Items:

• Confirm all wages, bonuses, and deductions are recorded.
• Reconcile payroll tax payments with filings.
• Prepare and distribute W-2 forms to employees and 1099s to contractors by the IRS deadline.

Tip:

Use payroll software (e.g., Gusto, ADP) to automate calculations and compliance.

7. Review Profit and Loss Statement

Why It Matters:

Your P&L offers insights into business performance and tax liability for the year.

Action Items:

• Run a year-to-date income statement.
• Compare actual results to budget and prior years.
• Identify any unexpected trends or anomalies in revenue or expense categories.

Tip:

Analyze monthly trends to understand seasonality or cost overruns.

8. Analyze the Balance Sheet

Why It Matters:

A strong balance sheet provides a snapshot of financial health and is critical for lenders or investors.

Action Items:

• Ensure all accounts are balanced and classified correctly.
• Confirm liabilities are recorded, including loans, deferred revenue, and taxes payable.
• Verify equity distributions and retained earnings are updated.

Tip:

Unusual balances or changes may indicate errors—review them closely with your accountant.

9. Calculate and Accrue Year-End Bonuses and Expenses

Why It Matters:

Accrual accounting requires recording expenses in the period they occur—not when they’re paid.

Action Items:

• Record bonuses earned but not yet paid.
• Accrue any unpaid bills or utilities incurred before year-end.
• Include interest expenses or loan payments due but unpaid.

Tip:

Talk to your tax advisor about the deductibility of accrued items if you use cash-basis accounting.

10. Review Business Tax Obligations

Why It Matters:

Planning before year-end can help reduce taxes and avoid surprises.

Action Items:

• Estimate year-end tax liability.
• Make final quarterly estimated payments (due January 15).
• Consider tax strategies like prepaying expenses or deferring income.

Tip:

Review any changes in federal or state tax laws that may affect deductions, credits, or rates.

11. Review and Adjust Owner’s Draw or Distributions

Why It Matters:

Owners often take money out of the business, which must be properly tracked and reported.

Action Items:

• Reconcile owner draws against the equity account.
• Avoid classifying personal expenses as business deductions.
• Plan distributions before December 31 for accurate year-end reporting.

Tip:

Talk to your accountant about the tax treatment of draws vs. salary for LLCs, S Corps, and partnerships.

12. Back Up and Secure Financial Data

Why It Matters:

Data loss can delay reporting, lead to compliance failures, and result in permanent record loss.

Action Items:

• Back up accounting files and payroll records to secure cloud or external storage.
• Use encrypted, password-protected systems for document sharing.
• Restrict access to sensitive financial data.

Tip:

Set up automated daily or weekly backups to avoid manual errors.

13. Meet with Your Accountant or Bookkeeper

Why It Matters:

Professional guidance ensures compliance, maximizes tax efficiency, and validates the accuracy of your records.

Action Items:

• Review financial statements together.
• Discuss tax-saving opportunities and compliance concerns.
• Confirm filing deadlines for state and federal returns.

Tip:

Provide your accountant with a year-end checklist and all supporting documents to make tax prep easier.

14. Archive Records for IRS and Legal Compliance

Why It Matters:

The IRS recommends keeping tax and financial records for 3–7 years, depending on the document type.

Action Items:

• Organize documents into folders (physical or digital) by category: income, expenses, payroll, taxes, etc.
• Label and date all files clearly.
• Store backups in at least two separate locations.

Tip:

Scan physical receipts and store them digitally for easy retrieval and audit readiness.

15. Set Financial Goals and Budgets for the New Year

Why It Matters:

Use your current data to build a more profitable, efficient, and financially sound operation for the year ahead.

Action Items:

• Forecast revenue, expenses, and cash flow for the upcoming year.
• Set monthly, quarterly, and annual financial goals.
• Build or revise your operating budget.

Tip:

Involve department heads in budget planning to ensure realistic and aligned goals.

Bonus: Prepare for Upcoming Changes in 2026

Stay ahead by preparing for:

• Any regulatory or tax law changes
• Shifts in payroll or sales tax rates
• Industry-specific compliance requirements
• Emerging technologies for automation and reporting

Staying proactive today avoids costly surprises tomorrow.

Conclusion

The year-end accounting process isn’t just a box to check—it’s a chance to ensure your business is running at its financial best. By using this structured checklist, U.S. business owners and financial teams can stay organized, maintain compliance, and start the new year with clarity and confidence.

Whether you handle accounting in-house or work with an outsourced provider, taking the time to wrap up the year correctly is one of the smartest financial moves you can make.