As the end of the year approaches, many small business owners feel the crunch of year-end preparations. Staying organized and proactive throughout the year is great – but not always achievable.

You can take the time now to not only sets yourself up for tax season success while you continue to focus on business growth instead of last-minute chaos. This guide walks you through a simple month-by-month strategy to ensure you’re ready for tax season with minimal stress.

December: Laying the Groundwork

December is the time to gather, review, and prep. If your business slows down in December, use that downtime to lay your groundwork. Doing that now will help you get ahead of the game so you can save time and reduce stress in the new year.

1. Organize Financial Records

• What to Do: Collect all receipts, invoices, bank statements, and credit card statements from the year. You can do this electronically or physically.
• How to Do It: Create an efficient organization system—digital software like QuickBooks or Excel work well, depending on your needs. The information can be input, and the invoices, receipts, and statements can be uploaded to your bookkeeping software or a cloud storage service.
  • If you’re a paper person, you can use physical folders or envelopes.
  • Regardless of the system you use, you might consider breaking them out by month. Do whatever is easiest for you!
• Why It Matters: Complete records are critical for accurate tax filing and ensuring you have proper back up for your deductions. The ability to provide all this to your accountant or tax professional easily is an added bonus.
• #PennysProTip: Aim to have your records sorted by December 31.

2. Review Business Expenses

• What to Do: Go through your expenses and identify tax-deductible items, such as office supplies, mileage, or advertising costs.
• Documentation Tip: Use apps like Expensify or an Excel sheet to ensure every deductible expense has matching documentation. If you use bookkeeping software, upload your expense receipts to the entry in the software.
• Important Deadlines: Many expenses need to be paid by December 31 to count for the current tax year.
• #PennysProTip: If you are on a payment plan for something that will cross into the next year, look into paying it off early, if it makes sense financially. Many business owners do this so that they can take the full expense in one calendar year.

3. Estimate Year-End Income

• Why: This helps you project taxable income and make year-end adjustments, such as deferring income or prepaying expenses.
• How: Review your profit-and-loss reports and year-end estimates from your accounting software.
• #PennysProTip: Always knowing what money is coming in and going out is critical to your financial success. Be aware of what income you anticipate each month and compare the actual to your budget or planning information. Whether you’re using software or a spreadsheet, keep your information up to date so you are always in the know.

4. Review Your Employee and Contractor Records

• Why: W2s and 1099s must be created and mailed out by January 31. Reviewing your records a month in advance gives you a chance to make sure things are coded correctly and make any necessary changes before crunch time.
• How: For employees, ensure that all paychecks and bonuses are accounted for. For contractors, review the records to ensure that reimbursable expenses are coded to a different account than compensation.
• #PennysProTip: Communicate with the person responsible for running your W2s and 1099s. Let them know when you’re finished reviewing and find out what their schedule is for completion.

January: Tax Planning and Record-keeping

January is the official beginning of tax season. It’s the time of year when bookkeepers, accountants, and tax professionals ramp up so they can handle the workload to come. They are planning ahead and so should you. Organizing now prevents scrambling as deadlines approach. As a bonus, your organized information will make your bookkeepers, accountants, and tax professionals very happy.

1. Consult with a Tax Professional

• Why: Tax laws change annually. A consultation ensures you’re up-to-date and leveraging all available deductions. It’s their job to be up-to-date and ready to support you.
• When: Schedule this meeting early in January to stay ahead of tax season.
• #PennysProTip: The earlier you can schedule that meeting, the process will go and the sooner you’ll have your ducks in a row.

2. Continue Organizing Records

• How: Set aside time each week to keep financial records updated. If you haven’t started using accounting software, now is the time.
• Software Tip: Consider accounting tools like Xero, QuickBooks, FreshBooks or Wave to simplify bookkeeping. Some businesses have simple needs that can be met with a spreadsheet in Excel or Google Sheets plus a cloud storage solution for the paperwork.
• #PennysProTip: If you’re going to make a change in the type of system you’re using, do so at the beginning of the year. That way you don’t have to go to multiple places to pull what you need come year end.

3. Start Gathering Tax Forms

• Required Forms: W-2s for employees, 1099s for contractors, and other income-related forms. Do you need to get them? Is someone else doing that for you? Now’s the time to make sure the tasks are ready to go.
• IRS Deadline: Send W-2s and 1099s to recipients by January 31. This one is law!

February: Finalizing Records and Preparing for Tax Filing

With tax deadlines around the corner, February is your final chance to resolve discrepancies and finalize documentation so you can file on time.

1. Complete Year-End Financial Statements

• What to Do: Prepare your income statement, balance sheet, and cash flow statement. These will be required by your tax preparer.
• #PennysProTip: Reconcile all accounts to catch errors before filing. Ideally your bookkeeper or whoever handles your monthly books is doing this each month.

2. Review and Finalize Tax Returns

• With Whom: Work closely with your tax professional or accountant to ensure accuracy.
• What to Check: Verify calculations, deductions, and business credits.
• #PennysProTip: Don’t be afraid to ask questions! Yes, these people are professionals, but it’s your business and your money on the line. If you’re not clear on something, ask.

3. Gather Additional Documents

• Examples: Loan statements, payroll records, and permits/licenses needed to file a complete tax return.
• #PennysProTip: Doing this throughout the year will have everything ready to go by the end of December!

March: Filing Your Tax Return

Have you ever filed your taxes in March? It’s an amazing feeling! Filing a month early is a relief to both you and your tax professional. It’s a great goal to work toward.

1. File Your Tax Return

• Options: File early to avoid last-minute rushes or request an extension if necessary. Keep in mind, an extension allows you to file after the tax deadline (typically April 15.) It doesn’t prevent penalties should you owe taxes.
• #PennysProTip: E-file through software or a tax preparer for faster processing and refunds. Also, talk to your tax professional about how best to use your refund.

2. Pay Any Taxes Due

• How: Pay online through the IRS website or via check. Include estimated payments for next year, if required.
• Deadline: April 15 (or the next business day if it falls on a weekend/holiday).

3. Retain Copies of Tax Returns and Documents

• Why: The IRS recommends keeping records for at least three years, but six years is safer in case of audits.
• #PennysProTip: Store backups digitally in a secure location, by year, with all of your corresponding back-up.Doing so creates less paper for your office and easy access to what you need should you need it.

Preparing for year-end doesn’t have to be overwhelming. By breaking the process into manageable steps and working proactively, you’ll not only avoid the stress but also set your business up for success in the year ahead.

Take the first step today—your future self will thank you!