Year-End Tax Checklist: What Small Businesses Should Do in December

As the year winds down, most small business owners are focused on closing projects, finalizing budgets, and planning for the year ahead. But December is also one of the most important months for tax preparation. Taking the right steps now can save you money, reduce stress, and help you avoid costly surprises when tax season arrives.

Whether you're a sole proprietor, an LLC, or a growing small business, use this year-end checklist to get ahead of your taxes and start the new year in a strong financial position.

Review Your Financial Statements Thoroughly

Start by reviewing your profit-and-loss statement, balance sheet, and cash flow reports. These documents give you a clear picture of how your business performed and what areas need attention before the year officially closes.

Ask yourself:

• Did revenue and expenses align with projections?

• Are there any unusual or unclassified transactions?

• Do your numbers look accurate and complete?

This step helps you identify errors, missing invoices, or discrepancies that may impact your final tax return.

Reconcile All Accounts

Before the year ends, reconcile every account your business uses, including:

• Bank accounts

• Credit cards

• Lines of credit

• Loans

• Merchant accounts (Stripe, PayPal, Square)

Reconciliation ensures that your records match what financial institutions report. This is one of the most important steps in creating clean financials—and drastically reduces back-and-forth with your tax preparer later.

Catch Up on Bookkeeping

If your bookkeeping fell behind during the year, December is the time to get caught up. Accurate and up-to-date records are essential for:

• Filing taxes correctly

• Understanding your financial health

• Claiming all eligible deductions

• Avoiding penalties for inaccurate reporting

This includes categorizing expenses, entering receipts, updating payroll records, logging revenue, and cleaning up your chart of accounts if needed.

Organize and Digitize Receipts

Many small businesses still rely on paper receipts or scattered digital files. Consolidating them now prevents issues during audits or when claiming deductions.

Use December to:

• Gather all receipts and scan them

• Match receipts to bank and card transactions

• Store everything in a cloud-based system

IRS rules require businesses to keep documentation for at least three years, and digitizing everything makes compliance much easier.

Evaluate Outstanding Invoices and Bills

Review your accounts receivable and accounts payable:

• Follow up on unpaid customer invoices

• Review vendor and contractor bills you still owe

• Decide which expenses to pay before December 31

• Consider whether to defer invoicing until January (if it supports your tax strategy)

Managing AR and AP right now gives you greater control over taxable income and cash position.

Review Payroll and Contractor Records

Payroll errors can create big tax problems. Before the year closes:

• Verify employee information

• Confirm wages, bonuses, and deductions

• Ensure contractor payments exceed $600 for 1099-MISC or 1099-NEC reporting

• Prepare W-2s and 1099s

You'll need accurate payroll totals to file quarterly and annual returns—and to send required forms to employees and contractors in January.

Maximize Your Deductions

Now’s the time to review and record every possible deduction. Common deductible expenses include:

• Office rent and utilities

• Software subscriptions

• Employee wages and benefits

• Business travel

• Equipment and supplies

• Marketing and advertising

• Training and professional development

If it supports your business, it might be deductible—but only if it's properly documented.

Consider End-of-Year Purchases

If you're on a cash-basis accounting system, paying for certain expenses in December can reduce your taxable income for the year.

Examples include:

• Equipment purchases

• Prepaying rent or utilities

• Ordering supplies

• Making charitable contributions

Always consult with an accountant before making large purchases solely for tax purposes. The expense must make sense for your business.

Meet With Your Accountant or Tax Professional

December is the ideal time for a year-end planning meeting. A tax professional can help you:

• Estimate your tax liability

• Identify new deductions or credits

• Strategize purchases or deferrals

• Ensure compliance with changing tax laws

• Plan for the new year

This proactive step often saves businesses thousands of dollars.

Review Your Business Structure for Tax Efficiency

Your current legal structure may not be the most tax-efficient option as your business grows. December is a great month to evaluate whether an LLC, S-Corp election, or C-Corp structure would lower your tax burden and better fit your upcoming plans.

Changes made at the start of the year are often easier to manage and track.

Prepare for Estimated Tax Payments

If you owe quarterly estimated taxes, prepare your final payment due in January. Reviewing your annual income now helps you avoid underpayment penalties.

Set Up or Contribute to Retirement Plans

Small businesses can take advantage of several retirement savings options, such as:

• SEP IRAs

• SIMPLE IRAs

• Solo 401(k)s

• Traditional employer 401(k)s

Many contributions made before year-end are deductible and help employees while reducing your taxable income.

Preparing for taxes in December may feel overwhelming, but taking these steps now leads to smoother filing, fewer headaches, and more money saved. Clean, accurate records give you financial clarity—and position your business for a strong start in the new year.

At Efficient Enterprise Solutions, we help small businesses stay organized, compliant, and financially prepared all year long.

Need help getting ready for tax season? Let’s talk.