Year-End Tax Closing for Companies: The Key to Effective Business Management

• December 16, 2024
• Alejandro Postigo
• no comments

The annual tax closing is one of the most crucial tasks in managing any company. This process not only ensures compliance with legal and tax obligations but also provides a clear picture of the company’s financial position. A well-managed year-end closing helps identify areas for improvement and plan successfully for the upcoming financial year. In this article, MJ Consulting explains the key steps in the tax closing process and the importance of having a reliable tax advisor to ensure accuracy and optimise the process.

What is a tax closing and why is it important?

A tax closing is the series of accounting and administrative processes required to close a company’s books at the end of the financial year. The aim is to calculate the company’s annual results, fulfil tax obligations, and prepare for the next financial year.

A well-executed tax closing not only avoids penalties and costly mistakes but also provides an accurate snapshot of the company’s financial health. Having an experienced tax advisor, such as MJ Consulting, is essential to ensure that all operations comply with current regulations and that the process is carried out efficiently.

Regularising expense and income accounts (Groups 6 and 7):

Expense accounts (Group 6) and income accounts (Group 7) must be regularised to determine the year’s results. This process includes:

• Verifying and adjusting accounting entries to ensure all expenses and income are properly recorded.
• Identifying any errors or pending entries.
• Transferring the net balance to the year-end results to determine whether the company has made a profit or a loss.

Regularising equity accounts (Groups 8 and 9):

Equity accounts reflect the net worth of the company and are essential for assessing its financial strength. During the tax closing, these accounts are reviewed to ensure that all equity adjustments, such as legal reserves, revaluations, or capital changes, are correctly recorded.

Closing all accounts to zero balance:

The technical closing of accounts ensures that, by the end of the financial year, all accounts (expenses, income, and equity) are cleared to a zero balance. This process ensures that the company’s books are balanced and ready for the next financial year.

Depreciation of assets:

Depreciation accounts for the loss of value of a company’s assets over time. It is vital to review and adjust the accumulated depreciation of items such as machinery, vehicles, or technology to ensure the financial statements accurately reflect the company’s economic reality.

Normal and accelerated amortisation:

Amortisation spreads the cost of assets over their useful life. During the year-end closing, both normal amortisation (in line with accounting regulations) and accelerated amortisation, which can provide tax advantages in certain cases, should be accounted for. An expert tax advisor can help determine the best strategy.

Legal and voluntary reserves:

Reserves are a fundamental part of the company’s equity and can be either mandatory (legal reserves) or discretionary (voluntary reserves). It is important to ensure that the minimum required legal reserves are allocated and to evaluate the benefits of creating voluntary reserves to strengthen the company’s balance sheet.

Financial review before closing and planning for the next year:

A detailed analysis of the financial situation before closing the books is essential. This review should include:

• Evaluating the company’s liquidity and solvency.
• Identifying areas for improvement in financial management.
• Preparing a strategic financial plan for the next financial year, based on the year-end results.

The importance of having a reliable tax advisor

The tax closing process can be complex, requiring advanced technical knowledge and a thorough understanding of tax regulations. Errors or omissions can lead to legal issues, penalties, or damage to the company’s reputation.

In MJ Consulting, we provide a comprehensive and personalised approach to year-end tax closings, ensuring:

• Regulatory compliance: We ensure that all operations adhere to current tax laws.
• Tax optimisation: We identify opportunities to reduce the tax burden, such as taking advantage of accelerated amortisation or reserve planning.
• Accounting accuracy: We ensure that financial statements accurately reflect your company’s situation.
• Strategic insight: Beyond closing the books, we help you prepare a roadmap for the next financial year.

Our priority is to ensure that the year-end tax closing is not just a procedural task but an opportunity to optimise your company’s management and ensure sustainable growth.

The year-end tax closing is a vital process for ensuring transparency, regulatory compliance, and strategic planning for any business.

If you would like more information or have any questions, please don’t hesitate to contact us. We invite you to follow us on our social media.