Year-End Bookkeeping and Tax Checklist for Law Firms

The end of the year is a busy time for every law firm. Attorneys are trying to close out matters, collect outstanding invoices, and plan for the new year. At the same time, the firm’s books need to be cleaned up, tax forms need to be prepared, and the CPA will soon be asking for year-end financial statements.

Starting early makes the process much less stressful. This checklist covers the main bookkeeping and tax-season tasks small law firms should complete before and shortly after December 31.

1. Bring All Bank and Credit Card Reconciliations Current

Every operating account, trust account, and business credit card should be reconciled through the end of the year. Unreconciled accounts are one of the most common reasons year-end financial statements are delayed.

For trust accounts, the December three-way reconciliation should be completed and reviewed, with any discrepancies resolved before the books are closed.

2. Clean Up the Trust Account

Year-end is a good time to look closely at trust balances. Review for:

• Earned fees that have not been transferred to operating
• Unused retainers on closed matters that should be refunded
• Outstanding checks that have not cleared
• Negative client balances
• Unidentified or very old balances

Resolving these items now prevents them from carrying into another year.

3. Review Accounts Receivable

Review the accounts receivable aging report and follow up on unpaid invoices. Decide which very old balances are realistically uncollectible and discuss with your CPA how they should be handled.

Many firms also make a final push to bill unbilled time before the end of the year.

4. Categorize and Review Expenses

Make sure every transaction is categorized correctly, especially:

• Uncategorized or “ask my accountant” transactions
• Personal expenses paid with firm accounts
• Large purchases of equipment or furniture
• Software subscriptions
• Client costs that should be recorded as advances rather than firm expenses

Advanced client costs are a common issue at law firms. Costs the firm expects to recover from clients may need to be tracked differently from ordinary operating expenses, so firms should confirm the treatment with their CPA.

5. Collect W-9s and Prepare 1099s

Law firms often pay independent contractors, contract attorneys, expert witnesses, court reporters, process servers, and other service providers. Many of these payments must be reported on Form 1099.

Attorneys and law firms should also keep in mind a few special rules:

• Payments to attorneys for legal services are generally reportable even when the attorney’s firm is a corporation.
• Fees for services are generally reported on Form 1099-NEC.
• Gross proceeds paid to an attorney, such as certain settlement payments, may need to be reported on Form 1099-MISC.
• The federal reporting threshold for 1099-NEC and 1099-MISC increased from $600 to $2,000 for payments made beginning in 2026.

Form 1099-NEC is generally due to recipients and the IRS by January 31. Collecting W-9 forms before year-end makes this deadline much easier to meet. Firms should confirm the current thresholds, deadlines, and filing requirements with their CPA.

6. Close Out Payroll for the Year

Before the final payroll of the year, confirm:

• Employee names, addresses, and Social Security numbers are correct
• Year-end bonuses are processed through payroll with proper withholding
• Payroll tax deposits are current
• Benefits and retirement contributions are recorded correctly

W-2 forms are generally due to employees and the Social Security Administration by January 31.

7. Review Owner Draws and Compensation

Owner draws, distributions, guaranteed payments, and owner salaries should be recorded correctly for the firm’s entity type. This affects both the firm’s financial statements and the owners’ personal tax returns.

S corporation owners should confirm with their CPA that reasonable compensation has been paid through payroll.

8. Prepare Year-End Financial Statements

Once reconciliations and cleanup are complete, the firm should produce a final profit and loss statement and balance sheet for the year. These are the core documents the CPA will use to prepare the firm’s tax return.

Reviewing them before they are sent can catch errors that would otherwise lead to follow-up questions or amended returns.

9. Organize Documents for the CPA

A complete year-end package often includes:

• Year-end financial statements
• Bank, credit card, and loan statements for December
• Payroll reports and W-2 summaries
• 1099 filings
• Fixed asset purchase records
• Loan and lease documents
• Records of owner contributions and draws

10. Plan for the Year Ahead

Year-end is also a good time to set a budget, review billing rates, evaluate software subscriptions, and decide whether the firm’s bookkeeping process is working. A firm that struggled to keep up this year may benefit from outsourcing in the year ahead.

Get Help Closing Out Your Year

A&W Associates helps law firms in Wesley Chapel, Tampa, and throughout the Tampa Bay area with year-end bookkeeping cleanup, trust reconciliations, payroll, and 1099 preparation. We can get your books organized and ready to hand off to your CPA.

Contact A&W Associates to start your year-end close.

This article is provided for general informational purposes and does not constitute legal or tax advice. Law firms should consult a CPA or tax advisor about their specific reporting obligations.