5 things to add to your business's end-of-year checklist: budgeting, tax prep, and bookkeeping essentials

The last quarter of the year is a critical period for small businesses. Beyond wrapping up projects and closing out revenue goals, many companies are preparing for the upcoming tax season and laying the groundwork for 2026.

This end of year checklist outlines key financial and operational steps to help you avoid common mistakes and prevent last-minute stress once January begins.

1. Annual Budgeting

While there’s plenty to wrap up at year-end, annual budgeting and forecasting should remain a top priority. Delaying budgeting into the new year slows down progress and leaves teams without a clear action plan.

For guidance on strengthening your process, explore our resource on better startup bookkeeping for smarter financial planning.

This foundation helps you enter 2026 with clarity and confidence.

Get the annual planning playbook here →

2. Close Your Books

Closing your books means finalizing all your financial records for a specific period (usually monthly, quarterly, or at year-end) so they are accurate, complete, and ready for reporting or tax filing.

In simple terms: It't the process of locking in your financial activity and making sure everything is correct and nothing else will be added or changed for that period.

What “closing your books” includes

It typically involves:

1. Reconciling accounts

• Bank accounts
• Credit cards
• Loans
• Payment processors (Stripe, PayPal, Shopify, etc.)

You match your accounting records to actual statements.

2. Categorizing all transactions

Every income and expense needs to be properly labeled.

3. Recording outstanding items

• Accounts receivable (invoices owed to you)
• Accounts payable (bills you owe)
• Accruals (expenses incurred but not yet paid)

4. Updating financial statements

Once everything is correct, you generate:

• Profit & Loss (Income Statement)
• Balance Sheet
• Cash Flow Statement

5. Locking the period

This prevents accidental edits once the numbers are final.

At Pilot, we advise to close your books at the end of every month. For bookkeepers and tax preparers alike, the end of year is a busy time and waiting to close your year end books without monthly books prepared can cause problems. Especially since you will also need to prepare for the upcoming tax season.

Even if you typically close your books by the end of year but haven’t done so just yet for the most recent quarter, it’s definitely better to step up your business' bookkeeping and get everything squared away on a more regular basis.  

3. Don’t send W-2 and 1099 forms out too early

Timing is everything when it comes to sending out W-2 forms to employees and filing a 1099 form for vendors, contractors, and freelancers. Aim for January 20th to get W-2s and 1099s out the door. 

Sending these tax documents out too early can create hassle for you or your human resources team, especially if important changes need to be made and shared with the Internal Revenue Service. 

As a reminder, employers do not need to send 1099 forms to international contractors who performed all of their work outside of the country and aren’t U.S. taxpayers. 

Read our explainer on how to file 1099s here → 

4. Finalize your tax preparer

Securing your tax preparer before year-end helps you maximize deductions, plan strategically, and avoid last-minute scrambling. Working with a tax professional early allows for strategic planning, like making necessary deductions, structuring the business for tax efficiency, and addressing any potential tax liabilities. 

Bonus points if you’re in communication with your tax preparer year round. Taxes are more than a simple compliance issue with endless room for error and potential penalties and fines. The beginning of the new year starts your tax preparer’s busiest season so maintaining open communication throughout the year will make for a smooth tax season ahead. Trust us.

5. Ensure payroll and employee tax documents are up to date

Keeping payroll data and tax documents updated prevents avoidable issues, especially for remote or relocating employees. Incorrect work locations can result in incorrect state withholding and costly tax complications. Regular checks help safeguard you and your team from filing mistakes heading into 2026.

Payroll accuracy isn’t just a year-end admin task since it directly affects tax compliance, employee satisfaction, and your risk of unexpected penalties. Before closing out the year, take time to review and update all payroll-related information to ensure you’re entering the new year on solid footing.

One of the most common issues small businesses face is incorrect employee tax details, especially for remote or relocating team members. Something as simple as failing to update a worker’s state of residence can lead to incorrect state tax withholding. For example, if an employee moves from California to Colorado but their work location isn’t updated in your payroll system, California taxes may continue to be withheld — leaving the employee potentially on the hook for double state filings and corrections.

To avoid these headaches, verify the following:

• Employee addresses and work locations reflect any moves during the year.
• State and local tax withholding settings match the employee’s current jurisdiction.
• Payroll provider settings (e.g., exemptions, deductions, benefits) are correct and up to date.
• Forms W-4 and state withholding certificates are current for any employees who made changes.
• Contractor information (including W-9s) is accurate before issuing 1099s.

Taking 30 minutes now to review these details will save both you and your employees from filing complications, amended tax forms, or delayed refunds later. A quick year-end payroll audit provides peace of mind and ensures you’re in compliance heading into 2026. If your team spans multiple states or includes many remote workers, consider setting a quarterly reminder next year to review work locations and tax settings so issues don’t accumulate.

Final thoughts

Striking a balance between budgeting, planning, and tax preparation priorities at the end of the year can be challenging, but getting some guidance and taking action quickly can make a big difference.

Pilot provides the most reliable accounting, CFO, and tax services for startups and small businesses. We partner with thousands of companies to help them grow sustainably and operate more effectively. Contact Pilot’s dedicated team of expert professionals for additional help today.