As the year ends, it’s time to take stock of your company’s year-end processing tasks. Whether you’re managing payroll, accounting, or both, having a clear checklist can make the year-end closing process smoother. In this blog, we’ll break down the essential steps you need to take for a successful year-end close and why your business must follow the proper year-end closing procedures.
What is Year-End Processing?
Year-end processing is an important task businesses undertake to wrap up their financial year and prepare for the new one. It involves finalizing financial records, processing payments, reviewing tax filings, and making sure all the books are up to date. Year-end closing can mean a lot of extra work for companies with payroll and accounting departments. Therefore, following a structured year-end payroll process is crucial to keep everything accurate.
Year-end closing helps businesses comply with tax laws, maintain clear financial records, and prepare for audits if necessary. It also allows employees to get paid correctly, and the company can start the new fiscal year with everything in order.
Key Year-End Payroll Processing Deadlines & Dates
Meeting payroll deadlines is essential to avoid compliance issues, penalties, and delays for your company and employees. Below are critical deadlines to keep in mind:
- W-2 Forms: Employers must issue W-2s to employees by January 31. This form details wages earned and taxes withheld.
- 1099 Forms: Employers must provide 1099 forms to contractors by January 31 to report non-employee compensation.
- Quarterly Taxes: Help your business stay current with quarterly tax filings. Make payments by January 15 of the new year for the final quarter.
- Year-End Bonuses: If you plan on giving employees year-end bonuses, include them in the last payroll of the year. Maintain a record of their year-end income and bonuses.
Staying ahead of these deadlines helps prevent errors and compliance risks. Utilizing payroll automation tools can simplify tracking and submissions.
Best Practices for Year-End Processing
Implementing a structured year-end process can prevent errors and ensure compliance. Here are some essential steps to follow:
- Verify Payroll Records: Review employee hours, wages, bonuses, and deductions to ensure accuracy before closing payroll for the year.
- Ensure Correct Tax Withholding: Double-check tax withholdings to comply with federal, state, and local regulations. Incorrect amounts can lead to costly penalties.
- Reconcile Payroll Accounts: Cross-check payroll records with your general ledger to confirm balances and that all tax payments have been made without discrepancies.
- Prepare and Submit Tax Forms: To remain compliant, complete and file all required tax forms (W-2s, 1099s) by their deadlines.
Proper planning reduces last-minute rushes and helps your organization start the new fiscal year with accurate, up-to-date records.
Accounting System Review and Adjusting Entries
Before officially closing out the year, review your accounting system to verify that all entries have been recorded correctly. This process includes reviewing credit card statements to keep all expenses accounted for. Make any necessary adjusting entries to make sure your accounts payable and accounts receivable are current. Missing or incorrect entries can cause discrepancies in your general ledger accounts, leading to errors in financial reports.
Your accounting team must review the journal entries throughout the year and match the physical documents, such as bank statements, invoices, and receipts. This step is critical for ensuring accurate reporting in your cash flow statement and helping with the overall financial close process. Ensuring these entries are correct will help you avoid delays during the month-end and year-end closing.
Managing Invoices and Receipts for Year-End Accuracy
Remember your invoices and receipts as you close your books for the year. These vital documents show all the money your business has spent and earned. It’s crucial to make sure every invoice and receipt is accounted for. If you miss any, it can lead to errors in your financial reports.
Make sure all payments are recorded and bank statements are reconciled with your general ledger accounts. Your accounting or payroll team should check for any missing journal entries and make sure everything matches the receipts and invoices. This simple step helps ensure your cash flow statement is accurate and that you are ready for tax filing at year-end.
Finalizing Financial Reports for the Fiscal Year-End
As part of the fiscal year-end closing, fully reconcile your accounts receivable and accounts payable. All outstanding invoices and bills are accounted for, and payments are correctly recorded in the general ledger accounts. Before finalizing the close, you must adjust any discrepancies in your financial reports and bank statements.
A closing schedule helps keep each task accounted for and completed on time. Some businesses also prefer to include credit card statements and invoices as part of their final checks to ensure no outstanding amounts.
Once everything is verified, your business can confidently generate the financial reports needed for tax filing, investor updates, and internal purposes. Finalizing these reports in time helps you meet deadlines and enter the new fiscal year with clarity.
Year-End Payroll Processing Checklist
A year-end payroll processing checklist is key to staying organized and completing all necessary tasks. Here are some simple steps to follow when processing payroll for year-end:
- Complete All Payroll Runs: Complete all payroll runs before the year ends. If you have employees working late in December, include those hours in the current payroll period.
- Verify Employee Information: Double-check that employee details, including their name, Social Security number, and address, are accurate. This verification is essential for tax reporting.
- Make Final Deductions: Make sure that any outstanding deductions—such as health insurance premiums, retirement contributions, or charitable donations—are deducted from employees’ paychecks.
- Issue Final Paychecks: Be sure employees receive their final paychecks for the year. This includes their regular pay, bonuses, and unused vacation time that may be cashed out.
- Prepare for Next Year’s Payroll: Update any new payroll information for the upcoming year, such as new benefits or changes in tax rates.
By staying on top of these year-end payroll processing tasks, your business will be ready for the next year without any surprises.
Creating a Simple Year-End Closing Schedule
A year-end closing schedule is a helpful way to stay organized. Start by setting precise dates for each task. For example, plan out when to review credit card statements and bank statements and make any adjusting entries.
Your schedule should also include reviewing accounts payable and receivable to keep everything updated. This approach will help keep your accounting system running smoothly and maintain accurate journal entries. Once your accounting or payroll team has everything checked and finalized, they can generate the needed financial reports to meet deadlines.
This simple schedule will help you avoid last-minute rushes and help your financial close process run smoothly, giving you peace of mind as you move into the new year.
Why Year-End Closing is Important
Year-end closing isn’t just about balancing the books or preparing for taxes—it’s about making sure your business starts the new year on the right foot. Following a year-end payroll process and accounting procedures helps you keep accurate records, comply with tax laws, and smoothly transition into the next fiscal year.
It also helps with forecasting and planning for the future. Clear financial statements help you better understand your business’s performance and make smarter decisions. Year-end processing can seem like a lot of work, but with the right tools and knowledge, it doesn’t have to be overwhelming. Using a year-end payroll processing checklist and following best practices for year-end closing will help your business stay organized and ready for the new year.
To learn more about year-end payroll processing, check out our blog for other helpful tips and resources.
