By Clark Lombardy (pen name)
"Closing the books" sounds like something a company with a finance department does in a glass conference room.
It isn't. If you run a shop, a crew, or a one-person operation, closing the year just means this: get your books to match reality for 2026, so you know what you actually made, and so your tax pro isn't guessing in March.
That's it. No suits required.
And the best time to start isn't January. It's now, while you can still fix things and still change some of them.
Why the number on your P&L might be wrong
Your profit and loss report (the P&L, what you earned minus what you spent) is only as good as what went into it. Most small-business books aren't wrong because someone did something shady. They're wrong because life is busy, and the bank feed keeps pulling in transactions whether anyone looks at them or not.
Here's a made-up example to show how it plays out.
Say you run a two-truck lawn care business. Your books say you've made $62,000 in profit for 2026 through November. You sit down for an afternoon and find three things:
$5,400 of personal charges on the business card (family gas, a couple of grocery runs) got categorized as business expenses. They aren't deductible. Moving them to owner draws (money you took out of the business for yourself) raises your profit by $5,400.
An $8,000 deposit was recorded as sales. It was actually you moving your own savings into the business account in a slow month. That's an owner contribution, not income. Fixing it lowers your profit by $8,000.
A $1,900 mower payment showed up twice, once from the bank feed and once entered by hand. Deleting the duplicate raises profit by $1,900.
New profit: $62,000 + $5,400 − $8,000 + $1,900 = $61,300.
The total barely moved. But look at what was hiding underneath: you were about to pay tax on $8,000 of your own money, deduct $5,400 you weren't entitled to, and double-count a mower. Small errors that cancel each other out are still errors, and they're exactly the kind of thing that turns into a letter from the IRS or a fat bill from your tax pro for cleanup.
What to do before December 31
You don't need to do everything. Do these, in this order:
Reconcile every bank and credit card account through November. Reconciling just means making sure your books and the bank statement agree, to the penny. This alone catches most of the problems above.
Clear out "Uncategorized." Every transaction sitting there gets a real home. Your tax return is built on those labels.
Separate personal from business. Personal charges on the business card become owner draws. Business costs you paid personally become owner contributions.
Chase your unpaid invoices. Pull your accounts receivable aging report (a list of who owes you, sorted by how late they are). Call, don't email. People pay the invoices they get asked about.
Collect W-9s now. A W-9 is the short form that gives you a contractor's legal name and tax ID. For payments you make in 2026, you generally need to send a 1099-NEC to anyone you paid $2,000 or more for services. That's up from $600 last year. Attorneys generally get one no matter what kind of business they are, and payments you made by card or through payment apps are usually reported by the payment company instead. Getting a W-9 in November is easy. Getting one in late January, from a sub who's stopped answering, is not.
Add up your 2026 estimated tax payments. If you pay quarterly estimates, the last one for 2026 is due January 15, 2027. Knowing where you stand now beats finding out in April.
Talk to your tax pro before any big year-end purchase. Buying equipment or funding a retirement plan before December 31 can change your 2026 tax bill. But a deduction still costs money. Spending a dollar to save part of a dollar is still spending a dollar.
Then in the first week of January: finish December, reconcile it, and lock 2026 with a closing date in your accounting software so nobody (including you) edits last year by accident.
The dates to circle
Jan 15, 2027: Last 2026 estimated tax payment (Form 1040-ES).
Feb 1, 2027: 1099-NEC copies to contractors and filed with the IRS. The usual date is January 31, but that's a Sunday in 2027, so it moves to Monday.
Feb 1, 2027: W-2s to employees and filed with the Social Security Administration, if you have anyone on payroll, including yourself through an S corporation.
The one thing to do this week
Put two hours on your calendar before December 31, and use them to reconcile your bank account and your main credit card through November. Don't do anything else in that block. You'll learn more about your year from those two hours than from any report.
Know someone who runs their own shop and dreads January? Forward this to them. And if someone forwarded it to you, you can get The Unaudited free every week at theunaudited.com: plain-English money and books for the little guys, one useful thing at a time.
Clark Lombardy is the pen name of a finance and accounting professional who helps small business owners understand their numbers. Educational only, not tax, legal, or financial advice. Tax rules and deadlines change, so confirm what applies to you with the IRS or your tax pro.
Sources
IRS, 2026 Form 1040-ES
