16-step year-end tax prep checklist for contractors and service businesses

Most contractors do their taxes in March, with a pile of receipts and a vague memory of what they bought in May. A year-end checklist moves the work to the months when the facts are fresh and the choices still exist. Each step below says who does it, when, and the common way it gets skipped. Two cautions. This page is general information drawn from IRS pages and is not tax advice, and rules vary by business type and state. Your accountant decides what applies to you. For the larger picture of keeping books, read our bookkeeping guide and the guide to estimated taxes for contractors.

1. Close the books through November in early December

Who: owner or bookkeeper. When: first week of December. Reconcile every bank and card account to its statement, categorize each transaction, and fix anything you cannot explain. That gives you a nearly complete year with one month left to run. Common skip: leaving the last four months unreconciled because the busy season ate the time. Finishing in December means you can still change what you buy and how you invoice.

2. Project your year-end profit and tax

Who: owner, with your accountant if you have one. When: early December. Run a profit and loss report for January through November, add a guess for December, and ask your accountant what that means for your tax. The IRS says individuals generally have to make estimated payments if they expect to owe tax of $1,000 or more. Common skip: learning the number in April. Our guide to the profit and loss statement shows how to read the report.

3. Put the fourth estimated payment on the calendar

Who: owner. When: due January 15, 2027, for income earned from September 1 through December 31, according to the IRS table. Estimate the amount from the projection in step 2 and set aside the cash now. Publication 505 describes an exception for people who file their return early and pay the full balance; read it before relying on it. Common skip: forgetting the January date because it falls in a different tax year than the income.

4. Collect a W-9 from every subcontractor and vendor

Who: office. When: before the last payment of the year. The IRS says Form W-9 is how a person gives the business that must file an information return their correct taxpayer identification number. Ask for it at the first job, not at the end of the year. Common skip: paying a crew you only met in June and finding in January that you have no tax ID and no way to reach them. Keep each W-9 in the vendor's file.

5. Total what you paid each subcontractor

Who: office or bookkeeper. When: last week of December. Add up the payments for services to each person or business you paid. For payments made after December 31, 2025, the IRS instructions for Form 1099-NEC set the reporting level at $2,000 or more. They also say payments made by credit card or payment card are not reported on a 1099-NEC, because the card processor reports those on Form 1099-K. Payments to corporations are generally not reported, with exceptions such as attorneys' fees. Common skip: counting a vendor's materials and labor together. Ask your accountant how to treat each one.

6. Review who is an employee and who is a subcontractor

Who: owner. When: once a year, in December. Look at each person you paid on a 1099 basis and ask whether they work on your schedule, with your tools, under your direction, and only for you. If so, talk to your accountant before filing. Our guide on employee vs independent contractor explains the test. Common skip: a long-term helper who started as a one-off and slowly became a full-time worker paid on a 1099.

7. Invoice every finished job and list what is unpaid

Who: office. When: by December 31. Send invoices for completed work and pull an aging report of what customers still owe. Whether income counts when you invoice or when you collect depends on your accounting method, so ask your accountant which applies. Common skip: finished jobs that never got invoiced because the customer paid at the door, or a deposit that was never matched to its job. Our guide to collecting unpaid invoices covers the follow-up.

8. Finish the vehicle and mileage log

Who: owner and any employee who drives. When: December, then daily next year. The IRS publishes the standard mileage rates each year, and Publication 463 says you can use a log, diary, notebook or any other written record to keep track of your expenses. Fill in the gaps while you remember your routes, using your job schedule as the guide. Common skip: trying to rebuild twelve months of driving from memory in April. Log trips as they happen from now on, in your CRM or phone.

9. Gather receipts for equipment and tools

Who: owner. When: December. List each piece of equipment, truck or tool you bought this year, with the date, amount and receipt. Ask your accountant whether to deduct or depreciate each, and whether a safe harbor applies. The IRS says taxpayers without an applicable financial statement can use a de minimis safe harbor of up to $2,500 per invoice or item, and it must be elected with a statement on a timely filed return. Common skip: buying equipment in late December just for a deduction. Buy what the business needs, and ask your accountant about timing first.

10. Photograph and file every paper receipt

Who: whoever holds the receipts. When: weekly, with a final pass in December. The IRS lists sales slips, paid bills, invoices, receipts, deposit slips and canceled checks as supporting documents and says to keep them organized by year and by type of income or expense. Photograph each receipt, name it by date and vendor, and link it to the transaction. Common skip: receipts that live in truck cup holders. Collect them before the end of the year, while you still know what they were for.

11. Reconcile payroll to your quarterly returns

Who: owner or payroll provider. When: after the final December payroll. Compare year-to-date wages and withholding in your payroll system to the quarterly Forms 941 you filed. Fix any mismatch before you issue W-2s. Check each employee's name and Social Security number against how they appear on the Social Security card, which the W-2 instructions say to use. Common skip: assuming the payroll software is always right when an employee's address changed or a wage was paid by hand. Our payroll guide covers the basic setup.

12. Prepare W-2s and 1099s

Who: owner or payroll provider. When: first half of January. For the 2026 tax year, the IRS instructions say to furnish W-2 copies to employees and file Copy A with the Social Security Administration by February 1, 2027, because January 31 falls on a weekend. Form 1099-NEC is due January 31 for both the recipient and the IRS, and the instructions move a weekend due date to the next business day, which makes it February 1, 2027. Common skip: starting these on the deadline day. Order the forms or choose a filing service in December.

13. File the annual unemployment tax return if you have employees

Who: owner or payroll provider. When: January. Employers use Form 940 to report their annual federal unemployment tax. For the 2025 year, the IRS listed February 2, 2026, with February 10, 2026, if all the tax was deposited on time, and January 31, 2027 falls on a Sunday, so confirm the 2026 dates in the instructions when they are published. Common skip: assuming payroll software files it automatically. Check your provider's settings.

14. Check how you pay yourself

Who: owner, with your accountant. When: December. How you pay yourself depends on your business structure. For example, the IRS says an S corporation must pay reasonable compensation to a shareholder-employee for services, and that payments tied to the owner's own work should be classified as wages. If your business is taxed that way, make sure your payroll reflects it before the year ends. Common skip: taking draws all year and putting them on payroll in January. See LLC vs sole proprietor for how structure changes this.

15. File and reconcile your final sales tax returns

Who: bookkeeper or owner. When: per your state's schedule. If you collect sales tax in your state, match the tax in your invoices to what you filed and paid, and settle any difference before you close the year. Rules differ by state and by service, so use your state revenue department's guidance and read our sales tax guide for the general picture. Common skip: assuming that a job taxed one way last year is taxed the same way now.

16. Build one packet for your accountant

Who: owner or bookkeeper. When: second week of January. Send a profit and loss report, a balance of bank and card accounts at year end, the unpaid invoice list, payroll reports, the 1099 totals, your mileage log and the equipment list. The IRS tells you to keep employment records for at least four years. A system that holds jobs, invoices and payments together can produce most of this in a few clicks, which is what our custom CRM service builds for service businesses. Common skip: sending a shoebox in March and paying for the sorting.

Where to start

If you only do three things before the year ends:

1. Step 1, reconcile the books, so you know where you stand while there is still time to act.
2. Step 3, schedule the fourth estimated payment, and set the cash aside.
3. Step 4, collect missing W-9s, so your January 1099s do not stall.

Then work down the list in January. None of this replaces a conversation with a CPA or enrolled agent who knows your numbers.

Frequently asked questions