Balancing and closing your books for the previous 12 months can be daunting, especially for new business owners. Listen to this webinar and read the highlights below to take away valuable tips and tricks for ‘year-end’ accounting as advised by two renovation industry accounting  experts and Houzz Pro’s QuickBooks Online Integration specialist. You will learn the best practices for creating accurate annual reports that will help prepare for the upcoming tax season.

What is the difference between a 1099 and a W-9?

Both of these important  documents are required by the IRS when a vendor or contractor provides a service for your business, such as decorating services or brand consultancy for a website. The difference between the two is that a W-9 form is filled out by the contractor providing information to the business they work for, such as their legal name, mailing address, and tax identification number. The business then reports the contractor’s yearly payments on a 1099 form. “Be aware that if you’re paying a vendor for both a service and a product, you must separate the two and only issue a 1099 for the service portion,” says Bradford Shumann, founder of Bradford Tax & Consulting. “You also only need to issue a 1099 to a contractor or vendor if they are paid over $600 across the year, while a 1099 also doesn’t apply to any payments to contractors by credit card, or any contractors who are set up as a corporation.”

Whilst it’s crucial to gather all contractor and vendor W-9s before the deadline of January 31st,  Emilie Sheaffer, CEO of Logistis for Designers, suggests you shouldn’t pay for their service until you have the required information for their 1099. “It is best practice to gather your contractor’s legal information when you start working with them as it can be hard to track them down at the end of the year when they may be taking vacation.”

What items should be reviewed and handled before year-end?

“It’s best practice to have everything cleaned up and closed, with all your 1099 prep completed, before going into the new year,” says Sheaffer. “If you’ve been keeping up with your accounting and bookkeeping monthly or quarterly, you should find this process simple.” To locate any open or unpaid invoices, Sheaffer suggests cross-referencing the vendor summary and transaction list in QuickBooks Online to make sure all outstanding invoices are paid before end-of-year, whilst also reviewing each project’s profit and loss to ensure all the information on Houzz Pro accurately details your financials. “There are a lot of moving parts this time of year, so ensuring all information is correct is essential,” she says. 

Another important aspect to consider is reconciling your QuickBooks Online account to ensure all figures match your bank statements. “If items aren’t marked off or there’s a double entry, these figures can still show up on your end-of-year finances and possibly overstate your income,” warns Sheaffer. “Double-checking every figure will save a lot of headaches when it comes to tax time.”

Andie Nelson, Houzz Pro’s Accounting Integration Expert, points out that it’s important to ensure your accounting systems match, so if an invoice is showing as unpaid in QuickBooks Online, it should also appear as unpaid in Houzz Pro. “Check that there aren’t any syncing errors or this will impact your end-of-year figures.”

Top tip: Any operational costs, such as office furniture or subscriptions, are considered as a deduction for the current year, therefore if you need to make any operational purchases for the new year, you should do so before December 31st to get the tax benefit.

Review Profit & Loss (P&L) to gauge which projects have been most profitable

Sheaffer believes a P&L statement is a great report to complete in QuickBooks at the end of each project, as well as at the end of the year. “If your QuickBooks is integrated with Houzz Pro, run a P&L report for each project and analyze your gross profit margin to truly understand the profitability of that project, not just what you imagine it to be,” says Sheaffer. “Then, if you’re looking to grow your design business, it’s worth identifying your most profitable projects and aligning your marketing strategy for the coming year so you can target similar projects.”

Review the Balance Sheet 

While a Profit & Loss financial report shows the income and expenses over a period of time, such as a month, a year or a quarter, a Balance sheet report refers to specific dates and breaks down your assets, liabilities, and equity. Shumann explains this well here. “In layman’s terms, assets are what you have, liabilities are what you owe, such as credit cards or loans, and equity is what’s left in the company for you to take as your own. If your Balance Sheet is accurate, your net income and the amount of income tax you owe will also be accurate.” Shumann also advises that its best practice to ensure your Balance Sheet is up to date and accurate by 31st December.

How to budget and plan for the coming year and tax season

Sheaffer offers some all-important advice on analyzing your end-of-year finances so you can manage and control your income for the coming year, boost your profitablity and get prepared for tax season. “Set a budget that aligns with your goals for the year ahead, whether that’s investing in marketing to grow your business, or enrolling more employees to expand the team, and set a target of what you’d like to make in that year. If you want to increase your revenue by 20%, for example, you need to calculate how many more projects you need to complete to achieve that goal,” she explains. 

Identifying how much it costs to run your business on a monthly basis is the key to understanding what profit margin you have to achieve to meet your targets. A good way to get a grip on operational costs, says Sheaffer, is to review your 2024 achievements by running P&L reports for each month. “There’s a useful tool in QuickBooks that allows you to track your spending so you can stay within budget and reach your objective.”

Something you should be doing monthly or quarterly, and also at the end of the year, is to compare design fees to your staff costs to ensure you are bringing in enough in design time and billable hours to cover the payroll. Houzz Pro’s Time Tracking tool is ideal for this purpose, allowing you to easily track time and expenses across your team, projects and activities, so you can bill more accurately and efficiently, 

End of year is a good time to check if your LLC (Limited Liability Company) is in good legal standing. “Every state requires you to renew your LLC either annually or bi-annually, so it’s worth checking this, or if your sales tax requirements have changed, by signing into the sales tax portal and looking for notices from the state,” says Shumann. “If you don’t stay on track with your LLC and fail to meet legal obligations, the state can dissolve the company and your business entity’s legal existence.”

Top tip: Sign into your sales tax portal for your state to check your LLC status, any outstanding payments, late fees, penalties or any changes to your sales tax filing requirements. 

Tax Season Deadlines 

Here are important dates for your financial diary:

• 1099 filing deadline is Jan 31st - All 1099s must be issued to vendors who are paid for service. 
• Business tax returns deadline is March 15th - This deadline is for companies that are a partnership, S corporation, or C corporation. If you’re working with an accountant or bookkeeper, aim to do your final review by the end of Jan, early February.
• Individual tax deadline is April 15th - If you are sole proprietor, all your business tax reporting is in conjunction with your individual income tax return.

Top tip: Set a new year goal to keep on top of your bookkeeping and accounting every month. 

Houzz Pro offers 30 days of free support when integrating QuickBooks Online, to ensure your mapping is set up correctly and everything looks good for year end.