Most year-end bookkeeping failures are not dramatic. Nobody loses a business to a single mistake in December. What happens is a mess surfaces in January: the books do not reconcile, the CPA asks for documents you cannot find, and tax season turns into a scramble.

Here is the year-end close checklist we walk LA businesses through every December, and the order that actually works.

Before you start: the timing that matters

California has specific filing requirements that drive the whole calendar:

  • Federal corporate return (Form 1120): due April 15. Extensions to October 15 are automatic but are not free - a late-filed return carries penalties from the original deadline.
  • California corporate return (Form 100): due the 15th day of the 4th month after the fiscal year ends. For a calendar-year business that is April 15.
  • Franchise tax (FTB Form 100): minimum franchise tax applies even to profitable businesses. For 2026, the minimum is $800 for corporations with under $1,000,000 in gross receipts.
  • Personal return (Form 540): due April 15 for individuals and most partnerships.
  • 1099 forms: must be issued to recipients by January 31 and filed with the IRS by January 31 (or February 1 if filing on paper). Late 1099s carry penalties.

The working-backward date: if you want a clean, stress-free close, your books should be reconciled by December 15. That gives your CPA three weeks to review and you two weeks to answer questions. Businesses that start in January are doing it backwards.

Step 1: Reconcile every account

This is the step everything else depends on. If the books do not reconcile, nothing after this is reliable.

  • Every bank account and credit card, reconciled to the statement
  • All merchant processors (Stripe, Square, Shopify Payments, PayPal)
  • Any loan accounts
  • Payroll accounts
  • All asset accounts with recorded depreciation

The test: the ending balance in every account, per your books, matches the statement exactly. Not approximately. Exactly.

The common failure: income recorded in QuickBooks but not yet deposited, or deposits recorded but not matched to the right customer. These accumulate all year and surface in December.

Step 2: Clear the catch-all accounts

Every business has them. The "Uncategorized" bucket, the "Ask My Accountant" folder, the "Miscellaneous" expense line. These are where problems hide.

Go through every uncategorized transaction and put it somewhere. If you cannot determine what a transaction was for, that is a conversation with the person who spent the money, not a bookkeeping decision.

Target: zero uncategorized transactions at year-end.

Step 3: Reconcile payroll

  • Every payroll run matches the payroll register and the bank
  • W-2s and 1099-NEC match what was actually paid
  • Federal and state withholding deposits were made on time (penalties are severe and cannot be waived)
  • PTO balances are accurate
  • Contractor payments: anyone paid $600+ during the year needs a 1099-NEC

Step 4: Review accounts receivable

Pull the AR aging report. Every invoice older than 60 days needs attention. Send reminders for anything 30+ days overdue.

Why this matters for tax: revenue is recognized when earned, not when collected. If you have invoices sitting unpaid, they still count as revenue. Some businesses make that mistake deliberately - and it creates a real tax liability with no cash to pay it.

Step 5: Review accounts payable

  • Every bill received is recorded, even if you have not paid it
  • Unpaid bills are current or flagged
  • Nothing is sitting in a personal account that belongs to the business

Step 6: Verify fixed assets and depreciation

  • List every fixed asset over your capitalization threshold
  • Confirm depreciation is being taken correctly on each
  • Dispose of any assets you sold, scrapped, or lost. If you disposed of equipment during the year, there is a gain or loss that needs to be reported.
  • Confirm the depreciation method matches what is on your tax return

Step 7: Review loan balances

  • Principal and interest split correctly
  • Interest expense matches the lender statements
  • Any loan forgiveness or modification needs to be reported

Step 8: Inventory count (if applicable)

If you sell physical products, a year-end count is required. In California, a physical inventory count is generally required if your gross receipts exceed $1 million. Even below that, if you track inventory, count it.

  • Count at the actual cost method if that is your method
  • Account for shrink, damage, and obsolescence
  • Confirm the count ties to the book value with a recorded adjustment

Step 9: Owner draws and distributions

For a multi-member LLC or an S-corp:

  • Distributions are documented and proportional to ownership
  • Reasonable compensation is set for S-corp shareholders
  • The S-corp election is actually filed (Form 2553) and has not lapsed

Common LA mistake: an S-corp that did not file Form 2553 in the first year. The election is not automatic.

Step 10: Bring the books to breakeven

This is the accounting check that catches the most problems.

Your total revenues minus total expenses, per your books, should equal what appears on your tax return. If they do not match, there is either a timing issue or an error.

Most common causes:
- Accrual vs cash accounting confusion
- Prepaid expenses being expensed incorrectly
- Owner draws recorded as expenses
- A large uncategorized or unreconciled balance

Resolve every discrepancy before handing anything to a CPA.

Step 11: Review and document the P&L

  • Every revenue line makes sense for your business
  • Every expense line makes sense
  • Compare against last year and against your budget. A line that is wildly different from every prior year deserves an explanation.
  • Verify the reporting period is correct

Step 12: File the right tax forms and issue 1099s

  • Determine which forms you owe: 1120, 100, 1065, 1040, 540
  • Issue 1099-NEC and 1099-MISC by January 31
  • Confirm the correct payer and recipient TINs
  • Check for federal and state filing requirements for each

Step 13: Make estimated tax payments

If you are a corporation, quarterly estimates are generally required. Federal estimates are due April 15, June 15, September 15, and January 15. California requires estimates for certain taxpayers.

Do not skip these. The IRS can require 100% of the current year tax if you do not pay. The safe-harbor rule (110% of last year's total tax, or 100% if over $100,000) takes the guesswork out.

Step 14: File the extension if you need one

File Form 7004 (federal) and the California extension (FTB Form 7004) by the original deadline. Extensions give you six more months to file, but they do not extend the time to pay.

Pay the estimated tax with the extension. This is the single most common and most expensive year-end mistake. A file extension without a payment is a penalty waiting to happen.

A note on what AI does and does not change

AI bookkeeping tools have gotten very good at the mechanical parts - categorizing transactions, matching invoices to receipts, flagging anomalies. What they still cannot do is the judgment work above.

Specifically, AI cannot decide whether a transaction should be capitalized or expensed. It cannot tell whether an S-corp election lapsed. It cannot review your AR aging and decide which client relationship is at risk. It cannot reconcile a book error with a bank error.

AI is a great first pass and a poor final pass. The close still needs a human who understands your business.

When to bring in a professional

Some situations are worth getting help on regardless of your bookkeeping ability:

  • Your business has employees and a payroll
  • You have multiple entities
  • You have inventory
  • You are on the cash method and revenue timing is complex
  • You are in a high-asset year - equipment purchases, property, vehicle purchases
  • You had a big revenue year and want to make sure the tax bill is managed
  • You have gotten a notice from the FTB or the IRS

If you are in Los Angeles and want a professional to run the close, we handle year-end bookkeeping across the metro area. We are at 355 S. Grand Ave, Suite 2450, Los Angeles, CA 90071.

Call (323) 709-8818 or email info@bookkeeperslosangeles.com to schedule your year-end close. The earlier you start, the less it costs.

The December timeline

  • December 1-10: reconcile all accounts, clear catch-alls
  • December 10-15: payroll, AR, AP, fixed assets, loans
  • December 15: books should be reconciled and ready for review
  • December 15-20: CPA review, resolve discrepancies
  • December 20-31: final adjustments, document everything
  • January 15: confirm 1099 recipient details
  • January 31: issue 1099s and file them

Starting by December 1 turns a frantic January into a routine one.