The short answer: A year-end close in QuickBooks Online runs in seven steps. Reconcile every account through December 31, clear suspense balances, age receivables and payables, and book the adjusting entries. Then tie equity to the prior-year return, review 1099 vendors, and lock the period before the CPA package ships. Start in November. The first deadline lands on February 1, 2027.
- For payments made in 2026, Form 1099-NEC applies at $2,000 or more per contractor, up from the $600 floor used since 1954.
- Opening retained earnings in the books should equal the ending figure on last year’s return; any gap is an unbooked CPA adjustment.
- The $2,500 de minimis safe harbor only works if the books expense those items the same way the return does.
- A file that starts cleanup in November reaches the CPA in January, roughly six weeks ahead of the March 15, 2027 S corporation deadline.
Last updated October 2026.
Most year-end scrambles trace back to one decision: treating December 31 as the start of the work. By then, the 1099 deadline is five weeks out and the CPA’s queue is filling.
This guide sets out the sequence that turns a working file into a tax-filing-ready one. It covers what to reconcile, which adjusting entries go missing, and how to prove equity ties to last year’s return. The 2026 change to the 1099 threshold gets its own section, because it alters the vendor review for every calendar-year business.
How do you do a year-end close in QuickBooks Online?
A year-end close in QuickBooks Online is a final month-end close plus four annual tasks: adjusting entries, an equity tie-out, a 1099 review, and a locked period. The order matters, because each step depends on balances the previous one confirmed.
- Reconcile every balance sheet account through December 31: bank, credit cards, loans, payroll liabilities, and merchant clearing accounts.
- Clear the suspense accounts. Uncategorized income, uncategorized expense, and Ask My Accountant should all read zero.
- Age receivables and payables. Write off what will never be collected or paid, with documented support.
- Book the adjusting entries: depreciation, accruals, prepaid amortization, and deferred revenue.
- Tie opening equity to the ending balance sheet on the prior-year return.
- Review 1099 vendors against W-9s on file and the 2026 threshold.
- Set the closing date and deliver the package to the CPA.
Steps 1 through 3 repeat a normal monthly close. Steps 4 through 7 happen annually, which explains why they are the procedures most often skipped, rushed, or delegated without review.
When should year-end cleanup start to avoid the March scramble?
Start in November, roughly two months before the first federal information-return deadline. That window lets October and November close on schedule, leaving December as the only period to finalize in January.
The federal calendar for a calendar-year business filing tax year 2026 returns runs as follows. Each date applies the IRS rule that a deadline falling on a weekend moves to the next business day.
| Date | What is due | What the books must show by then |
|---|---|---|
| November 2026 | Internal target | October reconciled; W-9 on file for every vendor near $2,000 |
| January 15, 2027 | Internal target | December reconciled; adjusting entries booked |
| February 1, 2027 | Form 1099-NEC to recipients and the IRS | Contractor totals final (January 31 falls on a Sunday) |
| March 15, 2027 | Form 1065 and Form 1120-S | Final trial balance with the CPA by mid-February |
| April 15, 2027 | Form 1120 and Form 1040 | C corporation trial balance with the CPA by mid-March |
Partnerships and S corporations carry the tightest gap. Their returns are due on the 15th day of the 3rd month after year-end, per IRS Publication 509. A December cleanup started on January 10 leaves the CPA about four weeks.
What should be reconciled before sending your file to your CPA?
Every balance sheet account should be reconciled to an independent statement dated December 31. A reconciled operating account paired with an unreconciled loan still produces an inaccurate interest deduction.
- Cash and cards: every bank and credit card account, with uncleared items older than 90 days investigated.
- Debt: loan principal tied to the lender’s year-end statement, with interest split out of each payment.
- Payroll liabilities: balances tied to the fourth-quarter payroll filings, not left as residue from processor timing.
- Clearing accounts: Stripe, Shopify, or Square deposits netted correctly for fees and refunds.
- Owner accounts: distributions, contributions, and personal expenses separated from operating expense.
The mechanics of a single reconciliation appear in our bank reconciliation worked example. Files several years behind need a fuller pass first; our QuickBooks cleanup step by step guide covers stale checks, old payables, and duplicates.
What year-end adjusting entries are most common, and most often missing?
Five adjusting entries account for most year-end corrections. Each one moves expense or revenue into the right year, so a missing entry misstates taxable income in two returns at once.
| Entry | What it corrects | Why it goes missing |
|---|---|---|
| Depreciation | Spreads fixed-asset cost over its useful life | Books never record it; the CPA books it on the return only |
| Accrued expenses | December services billed in January | Cash-basis habits post the bill when it is paid |
| Prepaid amortization | Annual insurance or software paid upfront | The full payment hits expense in the month paid |
| Deferred revenue | Customer cash received before the work is done | Invoices post straight to income, ahead of ASC 606 recognition |
| Accrued payroll and bonuses | Wages earned in December, paid in January | Payroll posts on pay date, not service date |
One tax rule raises the stakes on capitalization policy. The IRS de minimis safe harbor lets a business without audited statements deduct tangible property up to $2,500 per invoice or item. It applies only “to the extent such amounts are deducted by you for financial accounting purposes or in keeping your books and records.” A $2,180 laptop capitalized in QuickBooks Online fails that test, even if the return expenses it.
Does the 2026 1099 threshold change year-end prep?
Yes. For payments made after December 31, 2025, Form 1099-NEC reporting starts at $2,000 of nonemployee compensation per payee, up from $600. The One Big Beautiful Bill Act made the change, and the threshold indexes to inflation from 2027.
Fewer forms do not mean less tracking. The vendor review still requires complete annual totals, because the general ledger must substantiate which payees fell below the reporting threshold. Two details catch files during the transition:
- Gross proceeds paid to an attorney, reported in box 10 of Form 1099-MISC, stay at $600.
- The backup withholding threshold moved to $2,000 with the reporting threshold, so a missing W-9 matters at the same dollar line.
Worked example. A $6.2M professional services firm paid 31 unincorporated contractors $600 or more in 2026. Under the old rule, it would file 31 forms. At $2,000, 19 contractors qualify, so the firm files 19 forms and documents the other 12 as below threshold. One contractor paid $1,940 through December also sends a $310 invoice dated December 28, which the firm pays on January 6, 2027. Form 1099-NEC reports payments in the year made, so that contractor stays at $1,940 for 2026 and needs no form.
Should retained earnings tie to last year’s tax return?
Yes. Opening retained earnings in the books should equal the ending retained earnings on the balance sheet of the prior-year return. A gap means the CPA adjusted the return but the adjustment never reached the general ledger.
Run the tie-out with three numbers: the ending retained earnings on last year’s return, the opening balance in QuickBooks Online, and the difference.
Worked example. The same firm’s 2025 return shows ending retained earnings of $412,380. QuickBooks Online shows $398,940 on January 1, 2026, a gap of $13,440. Tracing it finds two CPA adjustments that never reached the books:
- $11,200 of equipment the books expensed and the CPA capitalized, less $1,960 of first-year depreciation, for a net $9,240.
- A $4,200 duplicate vendor bill the CPA removed from the return.
$9,240 plus $4,200 equals $13,440, so the gap closes to zero. A single dated journal entry against retained earnings records both, and the 2026 return starts from a matching balance. Larger or older gaps belong to a balance sheet cleanup before the year-end close begins.
How do you set a closing date and password in QBO?
Set the closing date to December 31 after the CPA’s final adjustments are booked, not before. A closing date set too early forces repeated reopening of the period, and each reopening invites an undocumented edit to a year that has already been filed.
QuickBooks Online keeps the closing date in the advanced account settings, with an option to require a password for changes dated on or before it. Treat that password as an internal control. Assign it to the controller or outside accountant, never to the staff who post day-to-day transactions.
After the lock, compare the year-end trial balance to the figures the CPA used for the return. Any later difference means someone edited a closed period, and that edit needs an explanation before the next return.
What will your CPA ask for at year end?
The CPA will ask for a reconciled trial balance plus the support behind every number that needs judgment. Sending it as one package cuts the back-and-forth that pushes returns onto extension.
- Year-end trial balance, balance sheet, and profit and loss, exported after the closing date is set.
- December 31 statements for every bank, card, and loan account, matched to the reconciliations.
- A fixed-asset list with purchase dates, costs, and invoices for additions over $2,500.
- The 1099 vendor review, including W-9s and the below-threshold list.
- Receivable and payable agings, with support for any write-off.
- Loan, lease, and equity documents signed during the year.
Firms that already run a month-end close checklist assemble this in days, because eleven months are already reconciled. Under the Continuous Close Method™, the year-end package is the December close plus the annual entries above. Aaron Ressel reviews the equity tie-out and the 1099 list before any file goes to a client’s CPA. For the full case on monthly discipline, see monthly close vs. year-end.
Sources: IRS, Instructions for Forms 1099-MISC and 1099-NEC (Rev. December 2026); IRS Publication 509 (2026), Tax Calendars; IRS, Tangible Property Final Regulations.
Frequently asked questions
How do you close the books at year-end in QuickBooks Online?
Reconcile every balance sheet account through December 31, clear suspense accounts, and book adjusting entries for depreciation, accruals, prepaids, and deferred revenue. Then tie opening retained earnings to last year’s return, review 1099 vendors, and set the closing date once the CPA’s adjustments are booked.
What does a year-end QuickBooks cleanup include?
A year-end cleanup reconciles bank, card, loan, and payroll accounts, clears uncategorized and suspense balances, and writes off uncollectible receivables and stale payables with support. It also books missing adjusting entries and corrects the equity gap between the books and the prior-year tax return.
What will your CPA ask for at year end?
Expect requests for a year-end trial balance, balance sheet, and profit and loss, plus December 31 statements for every bank, card, and loan account. CPAs also ask for a fixed-asset list with invoices, the 1099 vendor review with W-9s, receivable and payable agings, and any loan, lease, or equity documents signed during the year.
Should retained earnings tie to last year’s tax return?
Yes. Opening retained earnings in the books should equal ending retained earnings on the prior-year return’s balance sheet. A difference usually means the CPA booked adjustments on the return, such as capitalized equipment or removed duplicate bills, that were never recorded in the general ledger.
When should year-end cleanup start to avoid the March scramble?
Start in November. That leaves October and November closed on schedule, December finished by mid-January, and 1099 totals final before the February 1, 2027 filing date. Partnerships and S corporations then have the trial balance to the CPA a month before the March 15, 2027 deadline.
