Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute legal, tax, or accounting advice. Nothing on this site should be relied upon as a substitute for professional advice from a licensed attorney, CPA, or financial advisor. Please consult a qualified professional before making any financial or legal decisions.
By the end of this guide, you'll have a clear, organized plan for gathering records, closing your books, and filing on time. Before starting, know your business structure (sole proprietor, LLC, S-corp, or C-corp) and have access to your bank and accounting records, since almost every step below depends on those two things being sorted first.
Step 1: Confirm Your Filing Deadlines and Business Structure
Your entity type determines both your form and your deadline, so this is the right place to start. Partnerships (Form 1065) and S-corporations (Form 1120-S) typically file by mid-March, while sole proprietors reporting on Schedule C and C-corporations (Form 1120) typically align with the mid-April individual deadline. These dates can shift when the standard due date falls on a weekend or federal holiday, so verify the exact date for the current filing year directly on IRS.gov or with your CPA rather than assuming last year's date carries forward.
Knowing your structure also tells you which supporting schedules you'll need. A single-member LLC taxed as a sole proprietorship uses Schedule C attached to a personal return. A multi-member LLC taxed as a partnership files Form 1065 and issues K-1s to each member. An S-corp files Form 1120-S and issues K-1s as well, but it also has payroll obligations for owner-employees that a sole proprietorship doesn't. A C-corp files its own return and pays corporate tax directly, separate from the owners' personal returns.
A common mistake here is treating the tax calendar as static. Deadlines move from year to year based on the calendar, and extensions have their own separate due dates that don't automatically apply unless you file for them. If you changed your business structure during the year, for example converting from a sole proprietorship to an S-corp, you may have more than one filing to account for. Write down every applicable deadline now, including any state-level due dates, since state filing dates don't always mirror federal ones.
Step 2: Reconcile Your Bank and Credit Card Accounts
Reconciliation means matching every transaction recorded in your bookkeeping software to the corresponding line on your bank or credit card statement, for every account, through December 31. It's the single most important mechanical step in closing your books because it catches duplicate entries, missing transactions, and bank fees or interest charges that never made it into your records.
Work through this methodically:
- Pull year-end statements for every business bank account, credit card, and line of credit.
- Compare the ending balance in your accounting software to the ending balance on each statement.
- Investigate and resolve any difference, no matter how small, before moving on.
- Flag transactions still sitting in an "uncategorized" or "ask my accountant" bucket and assign them to the correct account.
- Confirm that transfers between your own accounts are recorded as transfers, not as income or expenses.
Unreconciled accounts are one of the most frequent reasons tax preparers send books back to clients for corrections, which delays filing and often increases preparation fees. If you've been reconciling monthly throughout the year, this step is a final check. If you haven't, budget real time for it now, since a full year of unreconciled transactions can take days to sort through, especially if you have several accounts or a high volume of transactions.
Step 3: Gather Income and Expense Documentation
Start with income. Collect every 1099 your business received from clients or platforms, and cross-check the totals against what you recorded as revenue. Then flip to the other side: if you paid any contractor $600 or more for services during the year, you generally owe them a 1099-NEC, which is typically due to recipients by January 31. Form 1099-MISC still exists but now covers a narrower set of payments, like rent or legal settlements, rather than nonemployee compensation. Confirm current thresholds and due dates with the IRS or your preparer, since these can be adjusted.
For expenses, resist the urge to dump every receipt into one folder and sort it out later. Organize by category as you go: office supplies, software subscriptions, travel, meals, vehicle costs, home office expenses, and professional services. This mirrors how expenses will ultimately appear on your tax return and makes it far easier for your preparer to spot missing documentation or ask targeted questions.
One misconception worth correcting directly: running a personal expense through your business bank account and recording it in your books does not make it deductible. Deductibility depends on whether the expense is ordinary and necessary for your business, not on which account paid for it. If you bought a personal item on the business card by mistake, note it as an owner draw or reimbursement rather than leaving it categorized as a business expense. Cleaning this up now, rather than letting your preparer discover it in April, keeps your return accurate and reduces audit risk.
Step 4: Review Payroll and Contractor Filings
If you have employees, verify that the W-2s you'll issue match the total wages recorded in your books for the year, including any bonuses or fringe benefits. Discrepancies here usually trace back to a payroll system that wasn't synced with your general ledger, or a manual adjustment that never got recorded on both sides.
Next, check your payroll tax deposits and quarterly Form 941 filings. Confirm each deposit was made on time and that the total deposited for the year reconciles with what your payroll provider reports. Missed or late deposits can trigger penalties that compound the longer they go unaddressed, so it's worth catching now rather than after your return is filed.
For contractors, cross-reference your payment records against the W-9s you have on file. Before you can issue a 1099-NEC to anyone paid $600 or more, you need a valid W-9 with their correct taxpayer identification number. If you're missing a W-9 from a contractor, request it immediately, since filing a 1099 with incorrect or missing taxpayer information can result in penalties and delays. Keep a simple checklist of every contractor paid above the threshold, whether their W-9 is on file, and whether their 1099 has been prepared, so nothing slips through in the final rush.
Step 5: Identify Potential Deductions and Credits
This is where organized records pay off. Go through your expense categories with an eye toward deductions that small business owners commonly miss or underuse:
- Home office deduction, using either the simplified square-footage method or the actual expense method, whichever yields a larger, defensible deduction based on your records.
- Vehicle expenses, calculated with either the standard mileage rate or actual costs, provided you have a mileage log or comparable documentation.
- Retirement plan contributions, such as a SEP-IRA or solo 401(k), which can reduce taxable income if funded before your filing deadline.
Beyond the usual categories, ask your CPA whether your business qualifies for less obvious credits, such as the research and development credit for qualifying product or process improvements, or energy-efficiency credits tied to equipment or building upgrades. Eligibility rules for these credits change periodically, so confirm current requirements with a qualified professional rather than relying on what applied in a prior year.
Avoid estimating. It's tempting to round mileage or guess at home office square footage, but a preparer working from real numbers, exact mileage logs, actual square footage, and dated receipts, produces a return that holds up if it's ever reviewed. Pull the precise figures from your records now rather than reconstructing them from memory later.
Step 6: Run Preliminary Financial Statements
With your books reconciled and categorized, generate two reports for the full tax year: a profit and loss statement and a balance sheet. These give you and your preparer a complete financial picture before any tax-specific adjustments are applied.
Look at the profit and loss statement next to last year's version, line by line. A sudden jump in a specific expense category, or a drop in revenue that doesn't match what you remember about the year, deserves an explanation before you hand the statements off. Sometimes these anomalies point to a miscategorized transaction; other times they reflect a real business change worth flagging for your preparer, such as a new vendor contract or a slow quarter.
Send these statements to your tax preparer as soon as they're ready, rather than waiting until the week before your deadline. Early review gives your preparer time to ask questions, request missing documentation, and plan for any tax liability, instead of scrambling to interpret a new set of numbers under deadline pressure.
Step 7: Schedule Time With a Tax Professional
Book your appointment with a CPA or tax preparer in January, not March. Good preparers fill their calendars quickly once tax season starts, and waiting too long can leave you filing an extension by default, even if your books are in perfect shape.
Before the meeting, put together a document checklist so the conversation is productive rather than a scavenger hunt:
- Prior-year tax return, for reference and comparison.
- Current-year profit and loss statement and balance sheet.
- All 1099s and W-2s, both received and issued.
- Records of any asset purchases or disposals during the year.
- Notes on any business structure changes or major one-time events.
Use this meeting to talk about more than just the current-year return. Ask about estimated tax payments for the new year, since underpaying quarterly estimates is one of the most common ways small business owners end up with an unexpected penalty. Your preparer can help you calculate a reasonable estimate based on this year's results, which also gives you a head start on next year's tax season instead of starting from zero again in twelve months.
Confirming Your Return Is Complete
Once each step is checked off, confirm with your tax professional that no documents are missing and that estimated payments for the new year are on track. That final check closes the loop between your bookkeeping and your filed return, and it's the difference between a season that ends cleanly and one that leaves loose ends into the next quarter.
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