Along with the holiday rush and a final push for sales, “that” email has probably landed in your inbox.
It’s from your accountant, and the subject line is something like, “Getting Ready for Tax Season.”
For many small business owners, this email triggers a wave of anxiety. It’s the official start of the scramble—the hunt for receipts, the confusion over reports, and the sinking feeling that your books are… well, a bit of a mess.
You’re not alone. At Out of the Box Technology, we’ve helped thousands of business owners navigate this exact process. We find that the same anxieties and questions come up every single year. The problem isn’t the work itself; it’s the uncertainty.
The good news is that clarity is the best cure for financial anxiety.
To help you move from chaos to confidence, we’ve compiled the 10 most-asked year-end bookkeeping questions we hear from business owners like you. Here are the expert, straightforward answers you need.
1. What’s the real deadline for my year-end bookkeeping?
This is the most common question, and the answer is a bit more complex than just “Tax Day.” There isn’t one deadline; there are three you need to know.
- Deadline 1: January 31, 2025. This is the first and most urgent deadline. It is the non-negotiable date for filing all employee W-2s and all contractor 1099-NEC forms with the government and sending copies to the recipients. Missing this can result in steep penalties.
- Deadline 2: Your CPA’s Deadline (e.g., March 1st). Your tax preparer needs time to do their job. They can’t just take your numbers on April 14th. Most CPAs will set a deadline (often in late February or early March) for receiving your “tax-ready” package. If you miss it, you’ll be filing an extension (and you’ll still have to pay your estimated taxes on time).
- Deadline 3: The Tax Filing Deadline (e.g., March 15 or April 15, 2025). This is the final date to file your business tax return. This date depends on your business structure (e.g., March 15 for S-Corps and Partnerships, April 15 for C-Corps and Sole Proprietorships).
The Expert Answer: Your “real” deadline is January 31st. You must have your books clean enough by then to accurately identify all 1099 contractor payments. Your goal should be to have your entire year-end close completed by this date, allowing all of February for a calm, strategic review with your accountant.
2. What’s the difference between “closing the books” and “filing my taxes”?
This is a critical distinction that trips up many owners.
Think of it this way: Your bookkeeper is the builder, and your tax preparer is the building inspector.
- Closing the Books: This is the building process. It’s the work you (or your bookkeeping team) do inside your accounting system to ensure everything is 100% accurate for the fiscal year. This includes reconciling all bank accounts, categorizing all expenses, posting depreciation, verifying loan balances, and finalizing your reports. The final product is a set of “locked,” accurate financial statements.
- Filing Your Taxes: This is the inspection. Your tax preparer takes your finished financial statements and uses them to fill out the complex forms required by the IRS.
Why It Matters: Your tax preparer’s job is not to do your bookkeeping. They assume the numbers you give them are correct. If you hand your CPA a messy, unreconciled set of books (a half-built house), they will either:
- File an inaccurate return that could put you at risk.
- Refuse to file and send you away.
- Charge you an enormous hourly fee to do the “clean-up” work themselves—a job they are overqualified and too expensive for.
Action Step: Your goal is to hand your CPA a “tax-ready package” based on a closed set of books. This is the entire purpose of our Accounting Clean-Up Services. We are the “builders” who make sure your foundation is perfect before the inspector arrives.
3. The 1099 question: Who gets one, what’s the form, and when?
This is, without a doubt, the single greatest source of year-end panic.
The Short Answer: You must send a Form 1099-NEC (Non-Employee Compensation) to any unincorporated contractor, freelancer, or individual (including LLCs) to whom you paid $600 or more for services during the year.
Let’s break that down:
- Who gets one?
- YES: Your independent marketing consultant, the cleaning service (if it’s an LLC, not a corporation), your freelance designer, and your lawyer (legal fees are a special case and always get a 1099).
- NO: Employees (they get a W-2), and corporations (e.g., “S-Corps” or “C-Corps”).
- How do I know if they’re a corporation? You ask them! Before you ever pay a new vendor, you should have them fill out a Form W-9. This form is your “golden ticket.” On it, they check a box telling you their exact legal structure (e.g., “Sole Proprietor,” “LLC,” “S-Corp”). If they are not an S-Corp or C-Corp, you need to track their payments for 1099 purposes.
- What’s the deadline? January 31st. This is a hard deadline to both the IRS and the contractor.
- What if I paid them via credit card or PayPal? This is a key exception. If you paid a contractor via a “third-party payment network” (like PayPal, Stripe, Venmo, or a credit card), you do not send them a 1099. The payment processor is responsible for that. You only file for payments made by cash, check, or direct bank transfer.
4. How do I handle expenses I paid for with my personal card?
This is the “co-mingling” problem, and it’s the #1 mistake we see.
The Wrong Way: You buy a new business laptop on your personal Amazon account. In your accounting, you create a “bill” from Amazon and mark it as “paid” from your personal account. This is a messy, complex nightmare.
The Right Way (The “Owner’s Contribution”):
- Stop doing it! The first rule of business is a separate bank account.
- But if you did… You need to record it as an Owner’s Contribution. Your business “owes” you that money back.
- You create the expense in your books (e.g., “$1,500 for Computer Equipment”).
- Instead of showing it paid from the business bank account, you categorize the “payment” to a special equity account, typically called “Owner’s Contribution” or “Shareholder Loan.”
This action tells the Balance Sheet that the business acquired an asset (the computer) and the owner’s equity in the business went up by $1,500 (because you invested your personal cash).
The opposite is also true: When you pay yourself, it’s not a “salary” (unless you’re on payroll) and it’s not an “expense.” It’s an Owner’s Draw, which reduces your equity.
5. Do I really have to count my inventory?
Yes. 100%. If you sell a physical product, you are required by the IRS to perform a physical inventory count at year-s end.
Why It Matters: This isn’t just busy work. Your inventory count is directly tied to your Cost of Goods Sold (COGS), which is one of the single biggest expenses on your P&L.
The formula for COGS is: Beginning Inventory + Purchases - Ending Inventory = COGS
If your “Ending Inventory” number is a guess, your entire COGS number is a guess. And if your COGS is a guess, your entire Net Profit is a guess.
Example:
- You think you have $20,000 in inventory left.
- You actually have $10,000 in inventory (due to theft, damage, or miscounting).
- By overstating your inventory, you are understating your COGS by $10,000.
- This means you are overstating your profit by $10,000.
- Result: You will pay taxes on $10,000 of “phantom profit” that you never actually earned.
Action Step: Schedule your physical inventory count. Count everything. Then, give this final number to your bookkeeper or accountant so they can make an adjusting journal entry to make the Balance Sheet match reality.
6. My books are a mess. How “clean” do they need to be for my CPA?
This is the “shame” question, and it’s the one that keeps business owners up at night.
The Expert Answer: Your books need to be “audit-ready.”
This doesn’t mean “perfect.” It means provable. “Audit-ready” means:
- Every single transaction (in and out) is categorized—no “Uncategorized” or “Miscellaneous” junk drawers.
- Every single bank, credit card, and loan account has been reconciled for all 12 months. This means your books exactly match the bank statements.
- There is a receipt or source document for all major purchases.
- Your Balance Sheet is accurate. (Your loan balances are correct, your inventory is right, etc.)
A SCORE.org survey found that 40% of small business owners spend 80+ hours per year on bookkeeping tasks. If your books are a mess, that 80 hours can easily become 200 hours of stressful, year-end work.
This is precisely why our Monthly Outsourced Bookkeeping exists. Our clients don’t have a year-end scramble. They have a “year-end review” because the work is already done, reconciled, and proven, every single month.
7. What reports does my accountant actually need?
You’re worried about handing over a 200-page document. Your accountant just wants the “Big 3” and one master list.
Here is the perfect “Tax-Ready Package” to send your CPA:
- The Profit & Loss (P&L): Your income and expenses for the year. This shows if you made a profit.
- The Balance Sheet: Your assets, liabilities, and equity on December 31st. This shows your financial health.
- The Statement of Cash Flows: This explains why your cash balance changed, even if your P&L showed a profit.
- The General Ledger (or Trial Balance): This is the “master” report. It’s a list of every single transaction, by account, that adds up to the final numbers on the P&L and Balance Sheet. This is what your CPA will use to dig in and find details.
Pro-Tip: Run a “P&L vs. Last Year” comparison for yourself. Look for any huge jumps or drops (e.g., “Why did ‘Repairs’ go up 200%?”). Be ready to explain these big changes to your CPA. This is the kind of high-level analysis a Fractional Controller would prepare for you.
8. Cash vs. Accrual: Which one am I, and does it matter?
This concept is simpler than it sounds, and yes, it matters immensely for your taxes.
- Cash Basis: You record revenue when you receive the cash. You record an expense when you pay the bill.
- Accrual Basis: You record revenue when you earn it (e.g., when you send the invoice). You record an expense when you incur it (e.g., when you receive the bill).
Example: You do a $10,000 project for a client. You finish the work and send the invoice on December 20, 2024. The client pays you on January 10, 2025.
- On a Cash Basis, that $10,000 is 2025 revenue.
- On an Accrual Basis, that $10,000 is 2024 revenue.
Why It Matters: You must be consistent. Your CPA has likely already chosen a method for you on your past tax returns. You can’t just switch back and forth. This is a technical decision that has massive implications for your tax bill.
Action Step: Ask your CPA, “Am I filing my taxes on a cash or accrual basis?” Their answer will determine how you finalize your year-end reports.
9. What’s the difference between a W-2 and a 1099, really?
This question is about worker classification, and it’s one of the IRS’s favorite audit triggers. Misclassifying an employee as a contractor can lead to crushing penalties, including back payroll taxes.
- W-2 (Employee): You control how, when, and where they work. You provide the tools. You give them a regular wage and benefits. You withhold and pay their payroll taxes.
- 1099 (Contractor): They are a business. They control how, when, and where they work. They use their own tools. They send you invoices. You pay their invoices just like any other vendor. You do not withhold taxes.
The Test: The IRS’s test is all about control. If you treat someone like an employee (e.g., you set their hours, you give them a company laptop, you manage their day-to-day tasks), you must pay them as an employee. You cannot just call them a contractor to avoid payroll taxes.
Action Step: Review your 1099 vendors. Is there anyone on that list who acts like an employee? If so, you need to have a serious conversation with your CPA or HR consultant before you file.
10. Can I just do this myself?
This is the ultimate question: “Do I spend my time or my money?”
The Expert Answer: You can do your own year-end bookkeeping, just as you can change your own car’s oil.
The real questions are:
- Do you have the 20, 40, or 80+ hours it will take to do it right?
- Do you know what to look for? Will you catch the miscategorized expense that’s costing you $1,000 in taxes?
- Do you know how to reconcile a complex loan or an owner’s contribution?
- What is your time worth? If you spend 40 hours on bookkeeping, that’s 40 hours you didn’t spend on sales, marketing, or serving your clients. If your billable rate is $150/hour, you just spent **$6,000 worth of your own time** to save a few hundred dollars on bookkeeping.
You’re a visionary entrepreneur. You’re a master of your craft. You are probably not an expert bookkeeper. And that’s okay.
A clean year-end isn’t a chore; it’s the foundation for a profitable new year. It’s the data you need to make smart, strategic decisions. Don’t let the most important financial task of the year be done by a stressed, overworked, non-expert (you).
Still Have Questions? (Advanced FAQs)
Q1: What’s the single biggest year-end mistake small businesses make? Hands down, co-mingling funds (see question #4). It’s the fastest way to make your books an indecipherable mess and lose all legal protection from your LLC. The second biggest is failing to reconcile bank accounts, which means the data in your reports is built on a foundation of sand.
Q2: What’s the difference between a “soft close” and a “hard close”? A “soft close” is what we do for our monthly bookkeeping clients—we reconcile the month, review reports, and lock that period. A “hard close” is the year-end. It includes posting final adjusting entries (like depreciation) and formally “locking” the fiscal year in the software so no one can accidentally change 2024’s data in the middle of 2025.
Q3: Help! I just found a big mistake from last year. What do I do? Do not “just fix it” in the current year. This will make both years’ reports inaccurate. You must contact your tax preparer. The “correct” way to fix it is often by making a “Retained Earnings” adjustment, and your CPA may need to file an amended tax return for the prior year.
Your 2025 Starts With a Clean 2024
Don’t let another January be lost to financial chaos. These questions are a start, but the answer isn’t just “knowledge”—it’s action.
If you read through this list and felt more overwhelmed than relieved, that’s a sign. It’s a sign that it’s time to delegate. It’s a sign that it’s time to let the experts handle the books, so you can get back to building the business.
Let us take this entire, stressful checklist off your plate.
