The holidays are one of the most wonderful seasons for retailers. It’s also a time when a lot of accounting work needs to be done. As tax time approaches, your accounting records will need to be organized and finalized for the year. In this article, we’ll go through an end of year checklist that can help you organize your books and get them in good shape for tax time.
1. Bring your books up to date
First step, tie up any loose ends in your accounting records so your books are as up to date as possible. You should carefully review and look for any instances of money you’re owed or money you owe to others. These transactions should be paid and settled so your records for the year can be finalized.
For example, you might find customers that have yet to pay invoices or bills that you still owe. Bills are easy for you to take care of – but your customers will likely need a reminder about any outstanding invoices they need to pay. Give them a call, ask how they’re doing and politely remind them that they’re past due. It’s in their best interest to settle the debt since they’re likely trying to close their accounting records for the year, too.
2. Spend some money on your business
It’s fairly well known that business expenses can be deducted from taxes. Still, many small business owners are careful with spending, knowing that an unexpected expense can come about at any time. But at some point, you’ll need to reinvest in your business if you want it to grow. And year’s end can be the ideal time to treat your business to something nice.
By making business purchases at the end of the year, you can reap the benefits of deductions sooner than later. Let’s say your business needs a new truck but you're reluctant to make the big purchase. You can buy the truck in December and take solace in knowing that you’ll get a portion of that money back in tax savings in only a few months.
3. Write off inventory
Another tax deduction that all retailers should know about is inventory writeoff. Not every item in your inventory will make it from your warehouse to the cash register. Some of your stock will likely become unsellable along the way, allowing you to deduct the loss from your taxes. Here are some common situations that lead to inventory becoming unsellable.
Loss– If any of your stock is lost due to theft or damage, you should able to deduct it.
Shrinkage– Often inventory quantities on paper don’t match the actual quantity you have in stock. This is known as inventory shrinkage and is something you can deduct on your taxes.
Donations– Businesses sometimes have excess inventory or even the wrong items all together. In these cases, you can donate the items to charity and claim the deduction.
4. Prepare to switch accounting systems
If your fiscal year aligns with the calendar year, then early January is an ideal time to move to a new accounting system. You’ll have minimal data to migrate since your records from the previous year were closed only a short time before. This makes the setup process quicker and easier and allows you to start fresh in your new system.
If you're switching accounting applications, take time to familiarize yourself with the new one as January 1 approaches. There’s a good chance it will have a different layout and terminology, so it will likely take some getting used to. Taking a few minutes to navigate around it and doing some basic training will help you feel more comfortable when it comes time to do the real accounting work.
5. Get setup for success next year
December is a wonderful time to reflect and think of improvements for the coming new year – and this should include your business finances.
As you review your books and prepare to close them for the year, think about what you did right and where you can improve going forward. Maybe you overspent on a certain part of your business or could have kept better records on a particular account. These are the types of things you’ll notice as you complete a final review. You can take a mental note and make a commitment to do better next year.
See you next year
The holiday season is a hectic time for everyone. But business owners in particular have a few extra responsibilities when it comes to accounting. It can be tough to do everything that needs to be done to finalize your books for the year, but it’s an important responsibility nonetheless. You’ll set yourself up for an efficient tax filing and your business will get off on the right foot in 2016.