As the end of the year fast approaches, self-employed- and small- business owners are gearing up for tax season. Heading into it we all feel a little overwhelmed, confused, and nervous about dealing with the IRS (okay, a LOT). Below is a checklist that business owners, from freelancers to contractors, home-based businesses to sole-proprietors, should be sure they complete before December 31 to prepare for tax returns and plan their business for the coming year.

End of Year Bookkeeping Checklist:

  1. Reconcile Your Bank Account. Even if you bank online and don’t balance a checkbook every month, year end is a good time to see if your account balances. Make sure the numbers make sense and that an expense or sale isn’t missing but also check the bank fees and records as we’ve experienced more than a few mistakes on the part of the bank; you don’t want an expense erroneously appearing twice.
  2. Catch Up On Invoices. Do you have any work or shipments for which you have not yet sent invoices? We like to think that you haven’t been paid until you’ve been paid.
  3. Record Transactions. Have you imported all the transactions from your credit cards, bank accounts, and receipts? Add your accounts from PayPal, eBay, or Freshbooks to record every expense and dollar received for your business, no matter how insignificant or questionable. We’ll work out exactly what you can deduct later; if you don’t record it, in the eyes of your bookkeeping, it doesn’t exist.
  4. Double Check. Are you missing any income or expense transactions? Honestly, double check. Did you do any contract work or test other sales channels on the side? Did you try earning some advertising revenue on your blog or website? Outright.com makes it easy to record everything but only if you tell us what to record.
  5. Categorize Expenses. This is where things get a bit tricky but time spent is well worth the effort. Make sure all of your income and expenses have been properly categorized. Categorizing your income (for the most part all “Sales”) is not nearly as critical as those deductible expenses. The Schedule C categories can be confusing but they make the difference; Mileage under “Car and Truck Expenses” is deductible while “Other Expenses” are not. We’ll do most of the categorization automatically for you; when in doubt, ask a professional or hire a bookkeeper.
  6. Don’t Forget Mileage. Have you recorded all the time spent in the car? Did you realize that you can deduct $.55 per mile for those trips to clients or meetings? Your daily commute doesn’t qualify but regardless, for many, the deduction adds up to thousands.
  7. Collect W-9s. Do you have W-9 information for all the contractors you paid this year? You’d be surprised at how many miss IRS form W-9. To properly file a 1099 for any contract or freelance work you involved, you need accurate taxpayer identification. The way to get that is to request a W-9 from the contractor. Get it now, 1099’s are due January 31.
  8. Pay Your Estimated Taxes. To avoid penalties when taxes are due on April 15th, be sure you’ve paid enough in estimated taxes for the year. Final federal tax payments are due by January 15th. The fourth installment of your 2009 estimated taxes should bring you up to at least 90% of what your final total taxes are for the year. If that’s still too confusing, pay the same amount as you actually owed from last year. How? Unfortunately, Work with the IRS.
  9. Triple Check Profit & Loss. Take a look at your profit and loss statement for the entire year. Do the numbers seem reasonable compared to how your income and expense totaled in prior years? Yes, we’re effectively triple checking your income and those expenses. Search your pockets for receipts, don’t neglect that credit card that was cancelled because creditors are so stingy, and keep in mind that payment from your brother for some consulting.
  10. Prepare A Budget for Next Year. One quick way is to take your profit and loss statement from the year that is ending and download it to a spreadsheet, then you can easily add formulas to say you want to increase revenue next year by 10% or reduce costs by 5%.

What else is on your end of year bookkeeping checklist?

For example, is it critical to check accounts receivable and payable?