Had Andy Williams ever heard of year-end tax preparation when he crooned, “It’s the most wonderful time of the year”? The end of the calendar year is quickly approaching and for many small businesses, December also marks the end of their fiscal year. In the midst of holiday shopping and wrapping up projects, you’ll also need to start closing out your books, budgeting, and tax planning for the upcoming year. All of that can make this the most stressful time of the year.
How you finish out this year will impact how you start out the next. While this process can be overwhelming, a little organization goes a long way. We’ve compiled the following list of year-end accounting items for you to check off in order to enter the new year on the right foot.
1. Make sure your bookkeeping records are in order.
If you’ve maintained up-to-date records from month-to-month already, you’re in a good spot. If you’ve missed a month or two, now is the time to wrap up loose ends and get your documents ready for your accountant. As the owner of a SME, your taxes are due three months after the year-end. Your accountant and/or bookkeeper will need 3-4 weeks to complete the year-end, so to avoid any late interest charges with a December year-end, your materials should get to them by the middle of February at the latest to ensure your tax plan is finalized ahead of the T4 and T5 deadline. This process is made easier with technology solutions such as Quickbooks Online or Xero. However, if you aren’t utilizing a cloud-based software solution, provide a backup copy of the file, along with the year-end bank and credit card statements, and any legal invoices paid in the year. If you have investments, your accountant will need copies of the statements for the year along with the year-end income/expense reports, portfolio, valuation, and any tax slips that would be issued in January or February.
2. Review your financial documents.
From your accounting software solution, pull a copy of your balance sheet and income statement. Make sure to include numbers of the prior years as well. Your balance sheet will highlight all your assets, liabilities, and equity, while your income statement shows your revenue and expenses for the year. When you are reviewing these documents, keep an eye out for balances that haven’t changed from the prior year, as there could be an error in how certain items this year have been posted.
3. Review accounts receivable.
While examining your documents, review the aging of accounts receivable. For any items outstanding for 60 days or longer, make sure to follow up for collection. If the amount isn’t collectible, consider whether it should be written off, and let your accountant know. You can reclaim the HST on the invoice, and take a deduction on your corporate taxes.
4. Review bank reconciliations.
Take a look at the bank reconciliations to ensure that the books balance according to the bank statements. This should be done for each and every bank account, and credit card account. Additionally, review any cheques that have been outstanding for longer than six months and have become stale-dated.
This is important because if the bank statements reconcile your bookkeeping records, it gives your accountant comfort that all transactions that occurred in the year have been properly recorded.
5. Consider what can be written off.
What equipment does your business own? Was anything sold this year? What about those computers you bought ten years ago and are not being used anymore? Tell your accountant about any items like this so they can write them off of your books.
6. Ask your accountant if you can claim additional deductions.
How much do you drive for the business? Are you using your own vehicle? What kind of documents do you have to support the amount of business mileage driven? The CRA is becoming more and more strict on vehicle expenses, and one of the easiest ways to defend yourself is by having a mileage log. Keep a notebook with your mileage and total up your business driving at the end of the year. You can claim this as a deduction on your corporate taxes.
7. Take note of what has changed this year compared to last year.
Has your business added new products or service lines? Are you selling in a new market? Have you taken on a new business strategy this past year? Your answers to these questions might help explain certain changes in revenues and expenses.
8. Plan your taxes.
Like any other business owner, the last thing you want to deal with is a surprise tax liability due through February or March. Ahead of your year-end, set up a meeting with your accountant to review your year-to-date financial statements and review what can be done prior to your year-end and consider the following items:
- Are there any purchases you are considering in the new year? Consider making the purchases now for the tax deduction.
- Discuss your personal tax needs. How much cash do you need to live on? We can help you set up a remuneration plan that optimizes both your corporate and personal liabilities, and give you estimates on what is due for March 31st and April 30th.
- For longer-term solutions, you also may want to reconsider your business structure, as this can change your tax situation. Speak with your accountant to see which tax strategies would work best for your business.
9. Set goals for the new year.
Now that you and your accountant and/or bookkeeper have reviewed your year-to-date financial documents and have an idea of where the business’s financial standing will be at year-end, you can set realistic goals for the next year. How do the goals from last year compare with reality? Did you accomplish everything you set out to? Look over your business plan to outline what can be done in the upcoming year to reach your new goals. Reflect on what you did well and what you can improve on.
That wasn’t so bad, was it? Having a list of year-end accounting items you need to do definitely helps the process. Realizing you may need an accountant to help with your year-end tasks? Many of the intricacies of year-end planning require professional financial assistance and advice – good thing we’re here to help! Whether it be providing software programs that can ease your record-keeping or implementing certain tax strategies, our team of experienced accountants and bookkeepers can get your business year-end ready. Give us a call at 647-476-2145 or schedule an appointment.