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Year-End Business Tax and 1099 Checklist: What to Review Before the Books Close
The final weeks of the year are busy. Holiday schedules, customer deadlines, payroll, and family plans compete for attention. This is also when unfinished bookkeeping and missing contractor information can create problems. Closing the books is more than clicking a button in your accounting software. You need to confirm that the records reflect what happened during the year. You also need enough time to correct errors, collect missing documents, and make tax decisions before the calendar closes.
Use this year-end business tax checklist to review your 2026 books, prepare for 1099 filing, and identify issues that should be discussed with your bookkeeper or tax professional.
Why the Year-End Review Matters
Current books help you:
Estimate taxable income.
Review cash flow.
Track deductible expenses.
Prepare financial statements.
Support the amounts reported on your tax return.
Make business and tax decisions before year-end.
A year-end review can also uncover transactions that were duplicated, omitted, misclassified, or posted to the wrong year.
The goal is not to make the books look perfect.
The goal is to make them complete, supportable, and useful.
Part 1: Year-End Business Tax Checklist
Review Income Through December 31
Compare the revenue recorded in your books with your bank deposits, payment processor reports, sales systems, and customer invoices.
Review the following:
Confirm that all 2026 income is recorded once.
Review unpaid customer invoices.
Determine whether outstanding invoices are still collectible.
Separate loans and owner contributions from business income.
Separate transfers between accounts from income.
Review customer refunds, chargebacks, and credits.
Compare payment processor reports with deposits recorded in the bank.
A payment processor may deposit sales after subtracting processing fees.
If you record only the net deposit, you may understate both revenue and processing expenses.
Reconcile Every Balance Sheet Account
Do not stop with the checking account. Reconcile every account that holds money or represents an amount the business owes.
This may include:
Business checking accounts
Business savings accounts
Business credit cards
Lines of credit
Business loans
Payment processor accounts
Clearing accounts
Payroll liabilities
Sales tax payable
Accounts receivable
Accounts payable
Owner contribution accounts
Owner draw or distribution accounts
Shareholder loan accounts
Obtain statements showing the December 31 balance. The amount in the books should agree with the supporting statement or reconciliation.
Review Expenses and Supporting Records
Review the profit and loss statement by month.
Compare the expense categories with the prior year and investigate:
Large changes
Negative expense balances
Round-dollar totals
Duplicate transactions
Missing expenses
Unusual categories
Uncategorized transactions
Make sure receipts, invoices, contracts, canceled checks, and other supporting records are available.
You should also:
Separate personal purchases from business expenses.
Review meals, travel, gifts, and vehicle expenses.
Review home office expenses when applicable.
Record business expenses the owner paid personally.
Review employee and owner reimbursements.
Confirm that bank-feed transactions were not entered twice.
Clear uncategorized income and expense accounts.
Investigate suspense and ask-my-accountant balances.
Supporting records help prove that an expense was connected to the business.
A bank or credit card statement shows that money was spent. It does not always explain the business purpose of the expense.
Identify Major Purchases and Asset Changes
Prepare a list of equipment, vehicles, computers, furniture, machinery, and other major purchases made during 2026.
Include purchases that were financed.
Financing an asset does not mean the purchase should be excluded from the books.
For each major purchase, gather:
Purchase date
Purchase price
Description of the asset
Business-use percentage
Invoice or purchase agreement
Loan documents
Year-end loan balance
Trade-in information
Date the asset was placed in service
Also identify assets that were:
Sold
Traded
Abandoned
Destroyed
Taken out of service
Converted to personal use
Tax treatment can depend on the type of asset, business-use percentage, placed-in-service date, entity type, and available tax elections. Do not assume every major purchase can be deducted in full.
Count and Value Year-End Inventory
If your business maintains inventory, complete a physical count near year-end.
Document:
Quantity on hand
Cost of the inventory
Valuation method
Goods in transit
Consigned inventory
Inventory stored at another location
Damaged merchandise
Obsolete merchandise
Missing or unsellable items
Ending inventory usually becomes beginning inventory for the next tax year. An incorrect year-end inventory balance can affect more than one tax year.
Review Payroll and Owner Compensation
Reconcile payroll reports with the general ledger.
Confirm that wages, withholding, employer taxes, and payroll liabilities were recorded correctly.
Review:
Employee names and addresses
Social Security numbers
Gross wages
Federal and state withholding
Social Security and Medicare taxes
Employer payroll taxes
Health insurance
Retirement plan contributions
Employee bonuses
Taxable fringe benefits
Personal use of company vehicles
Accountable plan reimbursements
S corporation shareholder compensation
Owner distributions
Do not wait until Forms W-2 are being prepared to discover that payroll information is incomplete.
Estimate Taxable Income and Review Tax Payments
A year-end profit estimate helps you compare your expected tax with payments already made.
Review:
Year-to-date business profit
Expected December income and expenses
Federal estimated tax payments
State estimated tax payments
Payroll deposits
Withholding from other income
Prior-year overpayments applied to 2026
Changes in income from the prior year
Business profit and available cash are not always the same. Loan payments, owner withdrawals, unpaid customer invoices, equipment purchases, and other balance sheet transactions can affect cash without appearing as ordinary expenses on the profit and loss statement.
Many sole proprietors, partners, and S corporation shareholders make estimated tax payments through their individual tax returns.
The fourth estimated tax installment for 2026 is generally due January 15, 2027.
Review Year-End Tax Planning Decisions
Some tax strategies depend on actions completed before December 31.
Others may be completed later but still require planning before year-end.
Review:
Retirement plan contributions
Retirement plan establishment deadlines
Equipment purchases
Placed-in-service dates
Employee bonuses
Payroll timing
Accountable plan reimbursements
Health insurance
Employee benefits
Bad debts
Charitable contributions
Entity structure
S corporation reasonable compensation
Do not spend money only to create a tax deduction. A deduction reduces taxable income. It does not reimburse the full cost of an unnecessary purchase.
Part 2: 1099 Checklist and Key Considerations
1099 preparation should begin before January. The slowest part is often not calculating the payments. It is identifying the correct payees, payment methods, legal names, addresses, and taxpayer identification numbers.
The 2026 Reporting Threshold Changed
For payments made during 2026, the general reporting threshold for certain payments reported on Forms 1099-MISC and 1099-NEC increased from $600 to $2,000.
The threshold is scheduled to be adjusted for inflation after 2026.
This change does not mean payments under $2,000 are automatically tax-free. A contractor or other recipient may still have taxable income even when the business is not required to issue a Form 1099.
1099 Preparation Checklist
Before preparing Forms 1099, complete these steps:
Run a vendor payment report covering January 1 through December 31, 2026.
Review every nonemployee service provider.
Do not review only vendors already marked for 1099 tracking.
Collect a complete Form W-9 from each contractor.
Confirm each payee’s legal name.
Confirm the business name when different from the legal name.
Verify the mailing address.
Verify the entity type.
Verify the taxpayer identification number.
Separate payments for services from reimbursements and product purchases.
Review rent, legal fees, medical payments, prizes, awards, and royalties separately.
Identify payments made by check, cash, ACH, or direct deposit.
Separate credit card and qualifying third-party network payments.
Review payments made to corporations instead of excluding them automatically.
Investigate missing or incorrect taxpayer identification numbers.
Review backup withholding issues.
Confirm state filing requirements.
Prepare recipient copies and filing information before the deadline.
Which Payments Usually Require Attention?
Form 1099-NEC is generally used for reportable nonemployee compensation paid in the course of a trade or business.
Form 1099-MISC covers several other payment categories.
Payments that may require review include:
Independent contractor payments
Professional service fees
Attorney fees
Gross proceeds paid to attorneys
Business rent
Medical and health care payments
Prizes and awards
Other income payments
Royalties
The correct form depends on:
What was paid
Who received the payment
How much was paid
How the payment was made
The recipient’s entity type
Whether a reporting exception applies
Not every payment in these categories requires the same form.
Collect Form W-9 Before You Need It
Form W-9 provides the legal name, business name, tax classification, address, and taxpayer identification number needed for information return reporting. The best time to collect Form W-9 is before the first payment or when the contractor relationship begins.
Waiting until January can create several problems:
The contractor may not respond.
Contact information may have changed.
The legal name may not match the tax identification number.
The contractor may dispute the payment total.
Filing may be delayed.
Backup withholding issues may be discovered too late.
Collecting Form W-9 does not automatically mean a Form 1099 must be issued.
It gives the business the information needed to make that determination.
Do Not Double-Report Card and Network Payments
Payments made using a credit card or payment card, along with certain third-party network transactions, are generally reported by the payment settlement entity on Form 1099-K.
The business payer generally does not report those payments again on Form 1099-NEC or Form 1099-MISC. This is why the payment method matters.
A vendor’s total in the general ledger may include:
Checks
Cash
ACH payments
Direct deposits
Credit card charges
Payment app transactions
The amount considered for Form 1099 reporting may not equal the full vendor total shown in the books. Review each payment method before issuing the form.
Do Not Rely Only on the 1099 Vendor Setting
Accounting software can prepare a useful 1099 report. The report is only as accurate as the information entered into the software.
A vendor may be missing from the report because:
The vendor was never marked for 1099 tracking.
The wrong tax identification information was entered.
Payments were posted to the wrong expense account.
The payment method was classified incorrectly.
Payments were recorded under more than one vendor profile.
A contractor was entered as a general payee instead of a vendor.
Run a broader vendor payment report and compare it with the software’s 1099 report. The differences may reveal contractors or payments that need additional review.
Review Corporate Vendors Carefully
Many payments to corporations are generally excluded from Form 1099 reporting.
Do not treat that as a rule that applies to every corporate vendor. Certain payments, including some legal and medical payments, may remain reportable even when the recipient is incorporated.
Use the vendor’s Form W-9 and the type of payment to determine whether an exception applies.
Review State Filing Requirements
Federal reporting rules are only one part of the process. Some states have separate filing requirements, thresholds, deadlines, or electronic filing systems.
Confirm the requirements for:
The state where your business operates
The contractor’s state
Any state where services were performed
States with income tax withholding requirements
Know the Filing Deadline
Form 1099-NEC is generally due to recipients and the IRS by January 31. When January 31 falls on a Saturday, Sunday, or legal holiday, the deadline moves to the next business day.
Other Forms 1099 may have different filing deadlines. State deadlines may also differ.
Starting the review in December gives you time to correct vendor information before filing begins.
Part 3: What to Review Before Closing the Books
Before finalizing the year, review the profit and loss statement and balance sheet together.
The profit and loss statement shows the business activity during the year. The balance sheet shows what the business owns, owes, and has invested or distributed at year-end.
One statement can expose problems that the other does not.
Final Close Checklist
Before closing the books, confirm that:
All bank accounts are reconciled through December 31.
All business credit cards are reconciled.
Payment processor clearing accounts have been reviewed.
Loans agree with year-end lender statements.
Accounts receivable contains valid unpaid customer invoices.
Accounts payable contains valid unpaid bills.
Payroll liabilities agree with payroll reports.
Sales tax liabilities agree with filed or pending returns.
Inventory has been counted and valued.
Fixed assets have been reviewed.
Asset purchases and sales were recorded.
Owner contributions were classified correctly.
Owner draws and distributions were classified correctly.
Shareholder loans were reviewed.
Uncategorized income accounts were cleared or explained.
Uncategorized expense accounts were cleared or explained.
Suspense accounts were cleared or explained.
Opening balance equity was reviewed.
Contractor payments were reviewed.
Forms W-9 were collected.
Prior-year adjusting entries were posted correctly.
The profit and loss statement was compared with prior periods.
The balance sheet contains no unexplained negative balances.
Stale checks, deposits, invoices, bills, and credits were investigated.
Supporting documents were organized by year and type.
Questions to Ask Before Finalizing the Year
Ask the following questions before closing the books:
Were any bank, credit card, loan, or payment processor accounts opened?
Were any accounts closed?
Were any loans obtained, refinanced, forgiven, or paid off?
Did the business purchase or finance any major assets?
Were any assets sold, traded, or taken out of service?
Were personal expenses paid from business accounts?
Did the owner pay business expenses personally?
Were there any new contractors?
Were there any new employees?
Did the business begin using a new payment platform?
Did the business receive grants?
Did the business receive insurance proceeds?
Were there unusual deposits or refunds?
Are any customers unlikely to pay outstanding invoices?
Did any inventory become damaged, obsolete, or unsellable?
Did the business begin operating in a new state or locality?
Were there any ownership or entity changes?
What Not to Do
Avoid these common year-end mistakes:
Do not force a reconciliation by posting the difference to an expense account.
Do not delete transactions only because they look unfamiliar.
Do not record loan proceeds as sales.
Do not record owner contributions as revenue.
Do not record owner draws as business expenses.
Do not deduct loan principal as an ordinary expense.
Do not issue Forms 1099 from an incomplete vendor report.
Do not assume every corporate vendor is exempt.
Do not double-report credit card and qualifying network payments.
Do not close the year while material questions remain unanswered.
A clean close should leave an explanation and supporting record for every significant balance. Mystery numbers do not become less mysterious in April.
Frequently Asked Questions
Do I need to wait for every December statement before reviewing the books?
No.
Begin the review before year-end.
You can identify missing Forms W-9, uncategorized transactions, major purchases, unusual balances, and potential tax issues while waiting for the final statements.
Is every contractor payment over $2,000 reported on Form 1099-NEC?
No.
The payment purpose, recipient type, payment method, and reporting exceptions must be considered.
Credit card and certain third-party network payments are generally handled through Form 1099-K reporting by the payment settlement entity.
Should I collect Form W-9 only after a contractor crosses the reporting threshold?
No.
Collect Form W-9 before payment or when the vendor relationship begins.
Waiting until January creates delays and makes incorrect information harder to fix.
Can I deduct a December purchase if I have not started using it?
Not always.
Depreciation and expensing rules often depend on when the property was placed in service, not only when it was ordered or paid for.
Does financing equipment prevent the business from claiming depreciation?
Not necessarily.
Financed equipment can still be recorded as a business asset. The loan and the asset are recorded separately.
The available tax treatment depends on the asset, business use, placed-in-service date, and applicable tax rules.
When is Form 1099-NEC due?
Form 1099-NEC is generally due to recipients and the IRS by January 31.
If January 31 falls on a weekend or legal holiday, the deadline moves to the next business day.
Does receiving no Form 1099 mean the contractor does not report the income?
No.
The obligation to report taxable income does not depend entirely on whether the contractor receives a Form 1099.
Start Before the Holiday Calendar Takes Over
The best time to review year-end records is before January deadlines begin.
Start with the books.
Confirm the balances.
Review contractor payments.
Collect missing Forms W-9.
Use the updated numbers to evaluate tax payments and remaining year-end decisions.
You do not need to solve every issue alone.
You need to identify the issues early enough to solve them.
If you need help closing your books, reviewing contractor payments, or preparing for 1099 filing, contact Unifirst Financial & Tax to discuss your business bookkeeping and tax needs.
