The Year-End Accounting Close Checklist for Small Businesses

Where Does the Year-End Close Usually Go Wrong?

Randall Joens, CPA, who directs the WhippleWood Client Advisory Service (CAS) practice, sees the same three gaps most years: vendor records, fixed assets, and accruals. Each one fails in its own predictable way.

• Vendor records. The W-9 file runs a year behind the payment file. Checks go out to trade names, so the 1099 carries a name the IRS cannot match to the TIN on file.
• Fixed assets. Additions get posted and disposals do not, so the schedule keeps depreciating equipment that left the building in June and accumulated depreciation stops tying to the ledger.
• Accruals. The December bonus gets accrued first and the payment date gets decided later. That order is backwards. For an owner bonus, the payment date decides the deduction year.

All three are inexpensive to correct in December and expensive to reconstruct in March.

What Belongs on a Year-End Accounting Checklist?

A year-end accounting checklist covers the layer a monthly close never touches: the accounts that drift slowly across twelve of them. It runs in four phases.

1. Before year-end, December 1 to 31. W-9 chase, tip and overtime flagging, inventory count, fixed-asset review, bonus decisions, owner draw cleanup.
2. Cutoff, January 1 to 10. Final invoicing, last bills entered, December payroll posted, cash and card cutoff.
3. Adjust and reconcile, January 10 to 31. Accruals, prepaids, deferred revenue, depreciation, loan true-up, equity roll-forward.
4. File and hand off, January 20 to March 31. Sales tax, 1099s, W-2s, payroll returns, state reconciliations, preparer package.

How Do You Clean Up Vendor Data Before 1099 Season?

Start from the payments, not the vendor list. Pull every non-employee payment made during 2026, exclude most corporations and anything paid by credit card, then match the rest against your W-9 file. Attorneys and medical providers are the usual corporate exceptions. Any vendor paid $2,000 or more for services needs a Form 1099-NEC. Gross proceeds paid to attorneys still report at $600, royalties at $10.

“For tax years beginning after 2025, the minimum threshold amount for reporting certain payments required to be reported on certain information returns and/or perform backup withholding on those payments increased to $2,000 and may be adjusted for inflation beginning in calendar year 2027.”
IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026).

The instructions phrase it as tax years, but the statute is keyed to payments: Public Law 119-21, section 70433(f), applies the change “with respect to payments made after December 31, 2025.”

A missing taxpayer identification number is the expensive gap, because payments to a payee who has not furnished a TIN are subject to backup withholding at 24%. Our note on the new $2,000 1099 threshold for 2026 covers what to change in your system.

What Changed on the 1099 Forms for 2026?

Six new boxes, and most year-end checklists do not mention them. The December 2026 instructions add boxes 1b and 13a for cash tips, and boxes 1c and 13b for the Treasury Tipped Occupation Code, on Forms 1099-NEC and 1099-MISC. Boxes 1d and 14 report overtime compensation. The authority is Public Law 119-21, section 70201 for tips and section 70202(a) for overtime.

The W-2 side tells the same story, and our post on tips and overtime in W-2 box 12 covers the employee half.

The December task here is a systems configuration task. Confirm that payroll and accounts payable can separate tips and overtime from the gross amount, and that each tipped payee carries an occupation code, because a single year-end total cannot be separated afterwards.

What Do Late or Incorrect 1099s Cost?

Two penalties, not one. A return filed late or with a wrong TIN costs $60 if you correct it within 30 days, $130 if you correct it by August 1, and $340 after that. A separate penalty of the same size applies to the payee statement, so one bad vendor record can cost twice.

Intentional disregard is the tier with no ceiling. For returns required to be filed in 2027, Revenue Procedure 2025-32, sections 4.57(3) and 4.58(3), sets that penalty at the greater of $690 or 10% of the aggregate amount of the items required to be reported correctly. The calendar-year maximum is listed as “No limit.” On a contractor paid $400,000 who never received a 1099, the 10% alternative is the one that bites.

Consult the revenue procedure rather than the IRS penalty web page, which has historically lagged a filing year behind. Before filing, run your vendors through IRS TIN Matching, which checks name and TIN combinations against IRS records at no cost.

What Does a Fixed-Asset Roll-Forward Need to Show?

The roll-forward starts at the prior year ending balance, adds additions, removes disposals, and lands exactly on the December 31 general ledger balance. Do the same for accumulated depreciation. Disposals get skipped most often: an asset sold, scrapped, or traded in during 2026 comes off both schedules, with the gain or loss recorded.

Three questions decide where a purchase lands: is it under your de minimis threshold, is it a repair or an improvement, and was it placed in service before year-end?

The IRS tangible property regulations allow a safe harbor deduction of up to $2,500 per invoice or item without an applicable financial statement, and up to $5,000 with one. One trap sits in the citation: Regulation section 1.263(a)-1(f)(1)(ii)(D) still reads $500, and the $2,500 figure comes from Notice 2015-82. Only an applicable financial statement makes the written policy mandatory, but the policy must exist before the year starts either way.

How Do You Count and Value Inventory at Year-End?

Count it, then value it, then explain the difference. The difference between book inventory and counted inventory is shrinkage, and it belongs in cost of goods sold in the year it occurred. Freeze receiving and shipping during the count, reconcile the sheets to the perpetual records first, and verify cutoff in both directions.

Keep the book entry and the tax position separate, because writing obsolete goods down on the books is not a deduction on its own. Regulation section 1.471-2(c) values damaged or unsalable goods at bona fide selling price less the direct cost of disposition, and defines that price as an actual offering of the goods within 30 days of the inventory date. File the offer evidence with the count sheets, because the burden of proof sits with you.

Which Accruals and Deferrals Belong in the December 31 Numbers?

Anything earned or incurred in 2026 belongs in 2026, whether or not cash moved. The usual four are accrued December payroll paid in January, accrued bonuses and commissions, prepaid expenses covering part of 2027, and deferred revenue on deposits collected but not yet earned. Build the prepaid schedule once and it feeds twelve entries in 2027.

When Is a Year-End Owner Bonus Actually Deductible?

For a related payee on the cash basis, the deduction lands in the year the payee is paid, and there is no grace period at all. Section 267(a)(2) matches your deduction to the day the amount hits the payee’s income. For an S corporation, the reach is total.

“[I]n the case of … an S corporation, any person who owns (directly or indirectly) any of the stock of such corporation … shall be treated as persons specified in a paragraph of subsection (b).”
26 U.S.C. section 267(e)(1)(B)(ii)

Read that threshold again. Any stock. A shareholder who owns 1% is caught. So an S corporation that accrues a shareholder bonus at December 31, 2026 and pays it March 1, 2027 takes the deduction in 2027, not 2026. For a C corporation, section 267(b)(2) sets the line at more than 50% of the stock, and family attribution counts toward it.

The two and a half month rule is a separate rule, and it governs employees who are not related parties. Under Regulation section 1.404(b)-1T, Q&A-2, a bonus is presumed to be deferred compensation to the extent the employee receives it after the 15th day of the third month following year-end. The presumption is rebuttable, and it turns on when the employee receives the money.

What Loan, Owner, and Equity Accounts Need a Year-End True-Up?

Four accounts reliably carry errors into the tax return: loans, owner accounts, equity, and receivables.

• Agree each loan balance to the December 31 lender statement, then split the year’s payments between principal and interest.
• Reclassify owner draws, shareholder loans, and related-party balances into their own lines, and roll equity forward from beginning balance through net income, distributions, and contributions.
• Review receivables over 90 days, write off what is genuinely uncollectible, and true up the tax liability accounts to the returns filed.

That allowance is a book figure. Under ASC 326 it is the allowance for credit losses, measuring expected losses rather than realized ones, and tax does not follow it. Section 166 allows a deduction for a specific debt that becomes worthless, and Congress repealed the reserve method in 1986. Hand your preparer the write-off list, not just the reserve balance.

What Does Your Tax Preparer Actually Need From You?

A closed trial balance with schedules that tie to it. Sending a raw accounting file transfers the work rather than finishing it, and the fee follows the work.

• Adjusted trial balance at December 31, with prior-year comparatives.
• December bank and credit card reconciliations.
• Fixed-asset roll-forward, inventory valuation, and loan amortization schedules.
• Accrual, prepaid, and deferred revenue schedules, plus the bad-debt write-off list.
• Copies of filed 1099s, Forms 1096, W-2s, and fourth-quarter payroll returns.
• Anything unusual: a new entity, a large asset purchase, an ownership change.

What Are the Year-End Filing Deadlines for the 2026 Tax Year?

Most filing pressure lands in one week at the start of February, and the rest trails into March. The dates below assume a calendar-year business closing 2026.

Which Rules Move Those Dates?

Three rules explain every date in the table. First, ten or more information returns of any type, added together, must be e-filed. Second, weekend and holiday dates shift, because IRS Publication 1099 treats a return as timely “if you file by the next day that is not a Saturday, Sunday, or a legal holiday.”

Third, timely depositors get extra filing time. The IRS employment tax due dates give Form 941 and Form 940 the same 10 additional calendar days when every deposit was made on time, which lands both on February 10, 2027. Verify your own Colorado filing frequency against the Department of Revenue.

What This Means for You

Owners who get through this cleanly chased W-9s in November, kept schedules rather than rebuilding them, and named an owner for each item. What applies to your books depends on your entity, method, and industry, so treat this as the shape of the work rather than a ruling on your facts.

If the same schedules get rebuilt every January, that is a capacity problem. Our comparison of in-house versus outsourced accounting and the true 2026 cost prices each path.

Next Steps

1. Block two hours in early December for the W-9 gap list, and register for TIN Matching two weeks earlier.
2. Confirm payroll and accounts payable can report tips and overtime separately for 2026.
3. Fix the payment date on every owner bonus before you accrue it, and check the payee against section 267.
4. Put January 20, February 1, and February 16, 2027 on the calendar, with reminders two weeks out.

Contact Us

If the annual close is taking January away from running the business, WhippleWood can take the schedules off your desk or review what your team produces. See what a monthly engagement includes on our CAS services and pricing page, or email info@whipplewood.com.