Do you own or do the accounting for an S corporation? If so, you want to make sure you take care of handful of year-end S corporation accounting tasks before December 31st.
This short blog post identifies these tasks. And know this: Fortunately none of these tasks burden you too heavily.
You just want to get them done now before New Year’s Eve.
Year-end S Corporation Accounting Task #1: Reimburse Shareholder-employees
Make sure before the year ends that you reimburse S corporation shareholders and shareholder-employees for any personally paid business expenses.
For example, if some shareholder-employee has run up a bunch of business mileage on their personal vehicle, reimburse them this year to get the deduction onto this year’s tax return.
Similarly, if someone has purchased office supplies on their personal credit card, reimburse them for that outlay before the year ends to get the deduction this year.
Year-end S Corporation Accounting Task #2: Verify Reasonable Shareholder Compensation
Sometime soon, and for sure sometime before the last payroll of the year, verify that all shareholder-employees have received reasonable compensation for the year.
In other words, if Joe, one of the owners, is supposed to get $60,000 in salary for year, make sure he’s going to hit that target before December 31st.
If one or more shareholder-employees does not yet have reasonable compensation for the year, be sure to pay that employee or employees enough in wages in the final paychecks of the year to get their total wages for the year up to some reasonable amount.
A related point: You really do need to pay shareholder-employees reasonable compensation in order to get the S corporation to safely work over the long haul.
Year-end S Corporation Accounting Task #3: True Up Shareholder Distributions
Before the year ends, you want to double check that shareholder distributions reflect ownership percentages if you have more than a single shareholder.
For example, if you have two equal 50% shareholders, Adam and Bethany, make sure that the distributions paid to Adam and to Bethany match.
A shareholder who owns X% of the subchapter S corporation needs to receive X% of any shareholder distributions.
Note: If you don’t make distributions that reflect shareholder’s ownership percentages, the mistake may cause the IRS to terminate your Subchapter S status.
Year-end S Corporation Accounting Task #4: QuickBooks A/R and A/P Clean-up
Are you using QuickBooks desktop for your accounting? If you are, make sure that both the accounts receivable and accounts payable records don’t have missing transactions.
To check for missing transactions, generate a cash basis balance sheet as of the current date. Then look at the accounts receivable balance and the accounts payable balance shown on the balance sheet.
If the accounts receivable balance shows up as a negative value, that negative value probably signals to you that customer payments have been recorded but that you need to record additional customer invoices, too.
Similarly, if the accounts payable balance shows up as a negative value, that negative value probably signals to you that vendor payments have been recorded but you need to record additional vendor bills.
You can get step-by-step instructions for finding and fixing half recorded accounts receivable and accounts payable transactions here.
And a final plea on behalf of tax accountants everywhere… Do be sure to do this clean-up before the tax return is prepared. Negative accounts payable and accounts receivable values indicate that your QuickBooks data needs additional transactions in order to accurately reflect your income.
Year-end S Corporation Task #4: Check Your Balance Sheet for Goofiness
Can I make one final suggestion? No matter what your accounting system, you want to produce a balance sheet as of the current date—like today—and look for any goofy values.
Absurdly high or low cash balances, suspicious looking liability or loan balances, anything else that seems wrong or old or off, that stuff signals to you that one or more errors exists in your financial records.
If you see stuff like this, clean the errors up if you can or outsource the work to an accountant or competent bookkeeper as soon as possible.
Fixing the errors on your balance sheet will mean your profit and loss statement and tax return more accurately reflect your income for the year.
Tip: Doing your financial housekeeping before the year ends is a good way to make sure errors don’t accumulate and compound over time.
A Final Tip for S Corporations
One final tip related to your year-end accounting: Do remember that your subchapter S corporation tax return, the 1120S return, goes to the Internal Revenue Service by March 15th. So a month earlier than the usual April 15th date a regular individual tax return is due.
I mention this because whoever prepares the 1120S return needs to get going on the return as soon as possible after the new year starts. (In our CPA firm offices, we will actually start working on 1120S tax returns the day after New Year’s!)