The end of the year is fast approaching for self-employed small business owners. (Sole Proprietors) A Sole Proprietor is a type of business entity that is owned by one individual and where there is no legal distinction between the owner and the business. The owner receives all profits and is responsible for all debts. The year-end profits of the business are combined with all other income that an individual might have and taxes are paid at the current personal tax rate.
Sole proprietors often feel overwhelmed, confused and nervous about preparing for their yearly tax filing; especially those new entrepreneurs that do not have a business or accounting background.
Your business year ends on December 31st and steps need to be taken to ensure you are not overpaying or underpaying the tax man. It starts with making sure your bookkeeping is done and up to date. Here is a checklist of task that should be completed every year:
End of Year Bookkeeping Checklist:
- Reconcile Your Bank Account. This will make sure that an expense or deposit (sale) is not missing. Don’t forget about those monthly bank fees.
- Catch Up On Invoices. Do you have work or product that you have completed but not invoiced for yet?
- Record Transactions. Have you imported or posted into your accounting system all transaction from your bank accounts, PayPal accounts, and credit card accounts. Search your pockets for receipts missed.
- Personal Expenses. Are you missing any income or expense transaction related to the business that were deposited or paid from your personal bank account?
- Categorize Expenses. Make sure all of your income and expenses have been properly categorized to the correct expense account.
- Don’t Forget Mileage. Have you recorded all the time spent in the car? Your daily commute doesn’t count.
- Don’t Forget Home Office Expense Allowances. If you are operating your business from your home you may be entitled to expense a portion of your mortgage interest and utilities. Check with your accounting professional.
- Pay Your Estimated Taxes. To avoid penalties when taxes are due on April 30th, be sure you’ve paid enough in estimated taxes for the year. If you need to make an additional instalment do it now.
- Check your Income Statement. Compared to prior years. Review for posting errors any amounts that have increased or decreased significantly.
- Don’t forget to reverse stale dated cheques! 6 months from date of issue.
- Record any year end accrual entries and depreciation if applicable.
- Check Accounts Receivable and Accounts Payable for accuracy.
- Bad debt write offs, if any. (and hopefully there aren’t!)
Prepare A Budget for Next Year. To start creating a new budget take your profit and loss statement in your accounting software from this year and export it to an spreadsheet, and then you can easily add formulas to increase revenue next year by a percentage or reduce some of your expenses.
Armed with this checklist and the help of your accounting professional your year end will go much smoother. Your business books will be error free and your tax return will be accurate.
Dianne Mueller CPB – Certified Professional Bookkeeper