This post by guest blogger Dianne Mueller provides advice for small business owners in Canadian jurisdictions.

Dianne Mueller, CPBIt's that time of year again when self-employed small business owners (sole proprietors) do their year-end.

A Sole Proprietor is a type of business entity that is owned by one individual, where there is no legal distinction between the owner and the business. In this type of business the owner receives all of the profits and is responsible for all of the debts. The year-end profits of the business are combined with all other income that an individual might have and taxes are paid at the current personal tax rate.

Sole proprietors often feel overwhelmed, confused and nervous about preparing for their yearly tax filing — especially those new entrepreneurs who do not have a business or accounting background.

Your business year ends on December 31st and steps need to be taken to ensure you are not overpaying or underpaying the taxman. It starts with making sure your bookkeeping is done and up to date. Here is a checklist of tasks that should be completed every year.

End of Year Bookkeeping Checklist:

  • Reconcile your bank account This will make sure that an expense or deposit (sale) is not missing. Don’t forget about those monthly bank fees.
  • Catch up on invoices Do you have services or products you have delivered but not yet sent invoices for?
  • Record transactions Have you imported or posted all transactions from your bank accounts, PayPal accounts, and credit card accounts into your accounting system? Search your pockets for any missing receipts.
  • Personal expenses Are you missing any income or expense transactions related to your business that were deposited into or paid from your personal bank account?
  • Categorize transactions Make sure all of your income and expenses have been properly categorized to the correct account.
  • Don’t forget mileage Have you recorded all the time spent in the car? Your daily commute doesn’t count.
  • Don’t forget home office expense allowances If you are operating your business from your home you may be entitled to expense a portion of your mortgage interest and utilities. Check with your accounting professional.
  • Pay your estimated taxes To avoid penalties when taxes are due on April 30 (April 17 in the US), be sure you’ve paid enough in estimated taxes for the year. If you need to make an additional installment do it now.
  • Check your income statement Compare it to prior years. Look for posting errors in any amounts that have increased or decreased significantly.
  • Don't forget to reverse stale-dated checks! Do this 6 months from date of issue.
  • Record any year-end accrual entries and depreciation if applicable
  • Check accounts receivable and accounts payable for accuracy
  • Write off bad debts, if any (Hopefully there aren't!)
  • Prepare a budget for this year To start creating a new budget take your profit and loss statement in your accounting software from last year and export it to a spreadsheet. Then you can easily add formulas to increase revenue next year by a percentage or reduce some of your expenses.

Armed with this checklist and the help of your accounting professional your year-end will go much smoother. Your business books will be error free and your tax return will be accurate.

-- Dianne Mueller CPB  - Certified Professional Bookkeeper Soma Small Business Solutions

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Need more help? If you want more assistance, or if you prefer to let someone else do the work, we can put you in touch with accountants and bookkeepers from the Wave Pro Network. Find a Wave Pro.

Are you still using a shoebox for your accounting? Or a clunky, expensive accounting application? Make your next tax year as pain-free as possible: Sign up for free online accounting for small businesses from Wave.