Starting early with year end accounting helps businesses prepare for tax filing.

• Author: Barbour, Tracy
• Position: FINANCIAL SERVICES

Near the end of each year, businesses face the inevitable--and sometimes dreaded--task of getting their books in order for income tax planning and filing. Preparing for "year end" involves whipping myriad records into shape for an in-house accounting expert or outside certified public accountant (CPA) firm to process.

Although December 31 marks year end for most businesses, many companies close their books at the end of January. However, businesses should be thinking about tax planning as they go throughout the current year, says Kevin Van Nortwick, Anchorage tax managing partner for BDO USA LLP. "During the year and before year end, keep your taxes in mind," he says. "Accumulate the information you need so that you don't have to go back and search for it later."

Businesses that need help keeping current with their recordkeeping might consider seeking outside assistance. "If your small business does not have a fulltime controller, it's a good idea to bring in a contract bookkeeper every quarter, so that when it comes to the end of the year you have better numbers," he says.

CPA Joseph Moore, a principal with Altman, Rogers & Co., advocates making ongoing preparations for year end. Most businesses find that year end closing activities go more smoothly if they pay more attention to closing out each month, he says. This can entail preparing reconciling accounts and updating records such as inventory, bad debt reserve, commission accruals, and tax provisions on a monthly basis. It's never too early to consider items related to year end accounting, Moore says. That's because there are things that can happen during the first month of the year that can have year end implications, he says. "Start preparing in the fourth quarter, and keep an eye on year end needs throughout the year," he says.

Moore adds that the more work businesses put into year end preparation, the more they will benefit on their tax bill.

To John Letourneau, CPA, managing director and shareholder of Thomas, Head & Greisen PC, businesses should start preparing for year end before the year begins. He says, "It is a lot easier to do things right throughout the year than it is to catch up."

So what should businesses be doing throughout the year to facilitate year end accounting? In general, Letourneau says, they should establish good record retention and accounting systems. They should also review the output of the accounting system during the course of the year and develop an expectation of what the reports of the accounting system should show.

These steps can translate in the company having predictable information for taxing authorities, as well as creditors, at the end of the year. "In my view, the best outcome of the year end process is no surprises," Letourneau says.

Procedures and Records Vary

A key task for accounting professionals when preparing for year end is to review all of their activity for the year. Then they should...