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.
How you finish out this year will impact how you start the next. While this process can be overwhelming, a little organization goes a long way. We’ve put together a list of year-end accounting items for you to check off to make sure you 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 golden! If you’ve missed a month or two, now is the time to wrap up those loose ends and get your documents ready for your accountant.
As a business owner, your corporate tax returns are due 6 months after the year-end, but the corporate tax payments are due 2 or 3 months after the year-end. Your accountant and/or bookkeeper will need at least 3-4 weeks to complete the year-end.
To avoid any late interest charges with a December year-end, if the corporation is generating sizable income, and you wish to withdraw cash from the corporation, your materials should be ready at the beginning of February to ensure your tax plan is finalized ahead of the T4 & T5 deadline at the end of February. At the very latest, your financial records need to be ready before the end of May so you can meet the filing deadline.
This process is made much easier with technology solutions such as Quickbooks or Dext. However, if you aren’t utilizing a cloud-based accounting software solution, provide a backup copy of the file, along with the year-end bank & 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 from January to March. T3 slips are due at the end of March. However, to meet the tax payment deadline and avoid interest, your accountant can estimate the tax for you with the income reports before allocating various T3 income.
2. Review your financial documents.
This is where your balance sheet and income statement come into play. 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 & credit card account. Additionally, review any cheques that have been outstanding for longer than 6 months and have become stale-dated.
When bank statements reconcile your bookkeeping records, it gives your accountant and bookkeeper comfort that all transactions that occurred in the year have been properly recorded.
5. Review capital assets.
What equipment does your business own? Was anything sold this year? Did you purchase anything this year that should be considered “Capital” and be presented on the balance sheet?
When reviewing capital assets, also consider – 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 protect 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. Are you using part of your home for business use? You can claim these 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. 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?
- For longer-term solutions, you also may want to reconsider your business structure, as this can change your tax situation.
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 do? Review 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.
It may not be the most stressful time of the year after all. Having a list of year-end accounting items you need to check off helps make the process feel like a breeze. Realizing now that 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’s providing software programs that can ease your record-keeping or implementing certain tax strategies, our team can get your business year-end ready. Call us at 416-646-0550 or request a consultation today.