Why do this now?

A proactive internal tax health check catches errors, secures missed tax benefits, and gives time to adjust withholding or make deductible contributions before the tax year closes. In my practice, clients who run this process annually avoid late surprises and sometimes recover thousands in missed credits or deductions (see IRS guidance at https://www.irs.gov).

Quick, prioritized checklist (work from top to bottom at least several weeks before year‑end)

  1. Reconcile income and expected forms
  • Match payroll (W‑2), contractor payments (1099‑NEC, 1099‑MISC), brokerage statements, rental income and other sources to your books or bank records. Discrepancies are a common audit trigger. (IRS: https://www.irs.gov)
  1. Review retirement and tax‑advantaged account opportunities
  • Confirm whether you can still make contributions to IRAs, HSAs, or catch‑up 401(k) contributions for the tax year and check employer plan deadlines. Missing a last‑minute contribution can cost more than the time to act.
  1. Check withholding and estimated taxes
  • Run a quick projection of year‑to‑date income, credits, and taxes paid to estimate any shortfall. Adjust payroll withholding or make an additional estimated payment if needed.
  1. Inventory deductions and credits
  • Gather receipts for charitable gifts, unreimbursed business expenses, medical expenses that may meet thresholds, education costs, and energy credits. Don’t assume home improvements or donations are ineligible — document everything.
  1. Review business and self‑employment items
  • For owners, freelancers, and gig workers: confirm classification of workers, reconcile business bank accounts, review mileage logs, and document business purpose for expenses. See our Tax Compliance Checklist for Sole Proprietors and Gig Workers for targeted steps: Tax Compliance Checklist for Sole Proprietors and Gig Workers.
  1. Audit payroll and employee tax items
  • Verify year‑to‑date payroll totals, retirement deferrals, and employer tax deposits. Small payroll errors compound into large liabilities and penalties. Use our guide on How to Build an Internal Audit Checklist for Payroll Taxes to structure this review: Internal Audit Checklist for Payroll Taxes.
  1. Evaluate capital gains, losses, and investment adjustments
  • Consider harvesting losses to offset gains, deferring sales when appropriate, and checking the tax treatment of dividends and interest.
  1. Assess depreciation, fixed assets, and year‑end elections
  • Review recent asset purchases for Section 179 or bonus depreciation opportunities and ensure asset lives and dispositions are recorded correctly.
  1. Check state and local rules
  • State filing rules and credits often differ from federal rules. Confirm nexus, withholding and estimated payment requirements for each state where you have activity.
  1. Document retention and records readiness
  • Organize receipts, contracts, statements, and reconciliations so you can substantiate items if the IRS or state asks.
  1. Create an action plan with deadlines
  • Assign tasks, owners and completion dates (e.g., finalize payroll adjustments, make additional estimated tax payment, or deposit retirement contributions).

Tools, timing and effort

  • Tools: accounting software (QuickBooks, Xero), a clean bank reconciliation, payroll reports, and a simple projected tax worksheet. The IRS has year‑end planning resources at https://www.irs.gov.
  • Timing: start 3–6 weeks before year‑end for most taxpayers; mid‑December is a good checkpoint for payroll and employer plan actions.
  • Effort: 1–2 hours for uncomplicated returns; several days for multi‑state businesses or those with complex investments.

Common mistakes to avoid

  • Waiting until after December to review: many corrective moves (e.g., changing withholding, making employer plan contributions) must happen before year‑end.
  • Poor documentation: missing receipts or mileage logs can disallow otherwise valid deductions.
  • Ignoring state rules: many taxpayers focus on federal only and miss state liabilities or credits.

Real‑world example

In my practice, a small business owner who followed this checklist discovered misclassified contractor payments and missed retirement plan deposits. Correcting classification and funding the plan before year‑end reduced taxable income and avoided an employment‑tax penalty.

Where to learn more

Next steps

  • Run the prioritized checklist, document findings, and implement the highest‑impact fixes first (withholding, retirement contributions, payroll corrections).
  • If you find uncertain or high‑risk issues, engage a CPA or tax attorney — corrections made before the return are almost always cheaper and simpler than post‑filing corrections.

Professional disclaimer

This article is educational and does not constitute specific tax or legal advice. For tailored guidance, consult a qualified tax professional or attorney. Authoritative sources include the IRS (https://www.irs.gov), U.S. Department of the Treasury (https://www.treasury.gov), and the Consumer Financial Protection Bureau (https://www.consumerfinance.gov).