Who this is for
- Sole proprietors, partnerships and corporations moving from one accounting program to another during the year
- Owners deciding between a mid-year cutover and waiting for year end
Not covered here
- Choosing a product, or which products an accountant supports
- Setting opening balances from a filed return after changing accountants
- Changing payroll providers, or changing from cash to accrual accounting
- Export steps in any named product
- Canadian businesses
Should I change my bookkeeping software mid-year or wait for year end?
Year end is the simplest time to switch, because one system then holds the whole tax year. A mid-year switch works when the books are reconciled to a month-end and the old file is kept, but the return, the Forms 1099 and the payroll forms must then be built from two systems.
Waiting for year end suits a business whose old program keeps working and stays paid through year end. Switching sooner suits one that loses support or access, or faces a renewal, before then: pick the next month-end whose accounts are reconciled. A price increase alone does not change what the cutover has to do.
| Item | Switch at year end | Switch mid-year |
|---|---|---|
| Profit and loss for the return | One system, once the year is closed | Old system to the cutover date plus new system after it |
| Vendor totals for Forms 1099 | One system | Both systems, added payee by payee |
| Payroll totals | One system | Year-to-date wages and taxes must move across |
| Sales tax periods | A new period starts clean only if the state's assigned period also ends on the cutover date | A filing period can straddle the cutover date |
The year-end column assumes a December 31 year end. If the tax year ends in another month, only the profit and loss ends up in one system: Forms 1099 report the calendar year and payroll returns follow the calendar quarter or year. Sales tax periods follow the state's assigned schedule, so even a December 31 cutover can fall inside one: California has a fiscal yearly basis that ends June 30.
A switch is not simple when any of these apply:
- Payroll runs inside the accounting file.
- Sales tax is collected in more than one state.
- The business holds inventory.
- There are several bank or card feeds, or more than one entity.
- An account holds foreign currency, or an owner or parent company is outside the US.
- Some months before the cutover are not reconciled.
- The tax year ends in a month other than December.
Gather before choosing a date:
- The trial balance: every account's balance on one date, taken at the last reconciled month-end.
- Receivables and payables aging: unpaid customer invoices and unpaid vendor bills, each with its date.
- The fixed asset list, with cost and depreciation to date.
- Vendor payments to date, and payroll and sales tax year-to-date reports.
- A complete backup of the old file.
Tell whoever prepares the return the cutover date before you move: the preparer needs both systems' reports at year end.
Does changing software change my tax year or accounting method?
No. A software change alters neither the tax year nor the accounting method: both come from the returns already filed, not from the software. The IRS publications cited here do not address a change of software itself; this follows from Publication 538's definitions of tax year and accounting method.
| Item | What it is | Does a software change alter it? |
|---|---|---|
| Tax year | The annual accounting period for keeping records and reporting income and expenses, calendar or fiscal | No. Changing it generally needs IRS approval on Form 1128 |
| Accounting method | The rules for when and how income and expenses are reported, such as cash or accrual | No, but the new file must follow the method on the filed returns or reconcile to it |
The return covers the full tax year, so it does not split at the cutover.
Publication 583 says to use the same accounting method to figure taxable income and to keep the books; Publication 334 says the same for a small business. The regulation is looser: accounting records include a reconciliation of any differences between the books and the return. Books on one method and a return on another: accrual books and a cash-basis tax return. The trap is a setting in the new file that the return is built from. If its reporting basis, inventory costing or depreciation differs from what the filed returns used, the treatment of a material item may change. Publication 538 says a change in method includes a change in the treatment of any material item, and that changes such as the inventory valuation method or the depreciation method generally need IRS approval, requested on Form 3115. An automatic change goes with the timely filed return for the year of change, plus a signed copy to the IRS by the day the return is filed; a non-automatic one is filed during that year. Correcting a math or posting error is not a method change. Whether a difference is one or the other is the preparer's call, made before the new file feeds a return. Changing from cash to accrual on purpose: switching from cash to accrual accounting.
Which cutover date should I pick?
Pick the last day of a month whose bank and card accounts are reconciled to their statements, and the last day of the tax year if you can wait. Publication 583 says to reconcile the checking account each month.
| Cutover date | What it gives you | What it costs |
|---|---|---|
| Last day of the tax year | Opening balances are the closing balances of the old year, once the preparer's year-end entries are posted; one system holds each tax year | Waiting |
| Last day of a calendar quarter | A payroll quarter (Form 941 filers file four a year; an employer assigned annual Form 944 has no quarter to align) ends on it, and so can a sales tax period, depending on the schedule the state assigned | The tax year is still in two systems |
| Another month-end | Works when reconciled | A payroll quarter and a sales tax period can straddle the date |
| Mid-month | No advantage | Deposits in transit, uncleared checks and part-month payroll straddle the date |
A year-end cutover still waits for the entries the preparer posts after year end, such as depreciation and accruals. If the new file opened before they were posted, enter each as one dated entry, or its opening balances will not match the filed return.
Whatever the date, write it down, stop entering anything dated after it in the old file, and set a lock date there (a date before which the file refuses new entries) if it has one. Locking a period: closing date after taxes are filed.
What do I bring into the new software?
Bring balances as of the cutover date, not history: one opening trial balance, open invoices and bills by document, the lists, and the asset list.
| Bring | As |
|---|---|
| Trial balance at the cutover date, every account except receivables and payables | One dated entry or import |
| Open customer invoices, accrual books | One entry per invoice, keeping its original number and due date, booked against the opening entry so it adds no sales |
| Open vendor bills, accrual books | One entry per bill, booked the same way so it adds no expense |
| Unpaid invoices and bills, cash-method books | A list only, not entries: each payment counts as income or expense when it is paid |
| Customer, vendor and account lists | Names, vendor tax ID, entity type and Form W-9 status, chart of accounts |
| Fixed asset list | Cost, date placed in service, depreciation taken to date |
| Inventory, if any | Quantity and cost by item |
Publication 583 says asset records show the purchase price, improvements, the section 179 deduction and the depreciation taken, and that documents for inventory show the amount paid. A double-entry system is self-balancing, so an opening entry that does not balance has an error in it.
Opening balances tied to the filed return: opening balances after changing accountants.
Do I move old transactions, or only balances and an archive?
Balances plus an archive are usually enough for the return. Move old transactions only when someone needs that detail inside the new system, such as a lender or investor comparing months across the year.
- Balances come in through the opening entry, above.
- The archive is the whole old file, kept as it is. It stays the original record of every earlier transaction: a file rebuilt by re-entering transactions is not a copy of the books and records of original entry, and does not satisfy an IRS request for the backup.
- Transactions are the risky part: each one moved is another chance to count something twice. If you need the whole year in one file, open the new file on the first day of the tax year and enter the months since from statements, as opening balances after changing accountants describes, instead of importing a slice of history. On accrual books statements are not enough: the invoices, bills and noncash entries, such as depreciation, go in too.
Use one source for each period's bank activity: the old file, or statements, or a bank feed, never two.
How do I get a full-year profit and loss when the year sits in two systems?
The full-year profit and loss is the old system's report from the first day of the tax year to the cutover date plus the new system's report from the next day to the last day of the year, added account by account, unless the new file already holds the early months. Choose one of three routes before importing, and never add the old report to a new file that already holds the early months.
| Route | The new file holds | The full year comes from | Watch for |
|---|---|---|---|
| Add two reports | Balance sheet accounts at the cutover date; profit to date sits inside equity | Old report to the cutover date plus new report after it | Account names that differ between systems |
| Load year-to-date income and expenses | An opening trial balance that includes income and expense balances for the year to date | The new file alone, with the early months as one lump per account | Software that rejects income and expense accounts in an opening entry |
| Re-enter the early months | Opening balances on the first day of the year, then each month from statements, plus invoices, bills and noncash entries on accrual books | The new file alone, with monthly detail | The most work and the most duplicates |
Whichever route:
- Before the cutover, map every old account to a new account on one sheet.
- Run the old profit and loss from the first day of the year to the cutover date and save it as a file.
- At year end, run the new profit and loss for the matching dates.
- Tie the old net income to date to what the new file carries for it: inside equity on the first route, in income and expense balances on the second.
- Give the preparer both original reports and the combined one.
A partnership or S corporation also needs equity right by owner at the cutover date; see setting owner's equity.
How do I keep year-to-date vendor totals right for Forms 1099 across two systems?
Total each payee's payments from both systems for the calendar year before deciding who gets a Form 1099-NEC. The test is whether you paid the payee at least $2,000 during the year. A payee who stays under that amount in each system can be over it in total. A payee from whom you withheld federal income tax under backup withholding needs a form whatever the total.
- Before the cutover, run payments by vendor from January 1 to the cutover date. Use payments, not bills: the test counts amounts paid.
- Keep that report with each payee's name, tax ID, entity type and Form W-9 status.
- In the new system, set up each payee once, under the same name and tax ID. A payee spelled two ways splits the total.
- At year end, add the pre-cutover payments to the new system's report, payee by payee.
- Leave out what the form does not cover. Who gets a form, including card payments and corporations, is in which contractors get a 1099.
Forms 1099 report amounts paid during the calendar year, so a business with a fiscal tax year that switches at its fiscal year end still has a calendar year split across two systems. Forms already missed: late contractor and employee tax forms.
How do I avoid counting the same invoice, deposit or bill twice?
Enter each item once: balances come in through the opening entry, open invoices and bills (accrual books) as open items only, and income and expense dated on or before the cutover date only through the full-year route you chose.
| Double count | How it happens | Prevent it |
|---|---|---|
| Receivables | The receivables total in the opening entry, plus the same invoices imported | Open receivables by invoice only |
| Payables | The payables total, plus the same bills | Open payables by bill only |
| Payments on open items | A payment after the cutover is entered as a new sale or expense instead of being applied to the open invoice or bill | Apply it to the open item |
| Uncleared checks and deposits in transit | They clear the bank after the cutover, and the bank feed offers them as new transactions | List them at the cutover; match them in the first reconciliation |
| Feed overlap | The bank feed starts before the cutover date | Start every feed the day after |
| Late corrections | A correction to a month before the cutover is posted in one file only | Post it in the old file, then mirror it as one dated entry in the new file |
The first three rows are for accrual books. On the cash method an unpaid invoice or bill is not yet income or expense: cash counts income when received and accrual when earned, so a payment after the cutover is new income or expense on cash books and only settles the open item on accrual books. More in opening balances after changing accountants. Duplicates already in the file: duplicate income.
How do I check the new file matches the old on the cutover date?
The new file matches when every balance sheet account on its cutover-date trial balance equals the old file's after mapping, and year-to-date profit agrees.
| Check | Passes when |
|---|---|
| Trial balance | Debits equal credits, and each balance sheet account equals the old trial balance once the invoices and bills are in. Income and expense accounts also match on the second and third routes; on the first, their net sits in equity |
| Cash and cards | Each account equals its statement, after listing uncleared checks and deposits in transit |
| Receivables and payables (accrual books) | Each equals the sum of its open invoices or bills, and none of their sales or expense shows in the new file's profit and loss after the cutover |
| Fixed assets | Cost less accumulated depreciation equals the balance sheet |
| Inventory | Quantity times cost equals the inventory balance |
| Payroll liabilities and sales tax payable | Each equals what is still unpaid after the last deposit or return |
| Equity | Equals assets less liabilities, by owner where there is more than one |
| Year-to-date profit | Equals the old report's net income to the cutover date, whether the new file carries it in equity or in income and expense accounts |
| First collection and first bill payment after the cutover | Accrual books: each settles its open item and adds no income or expense. Cash books: each adds income or expense once |
Save both trial balances as dated files; they are the evidence the two files agree. Reconcile the first month in the new file before entering the second.
What do payroll and sales tax history need at a switch?
Payroll and sales tax each need their year-to-date balances and their filing periods, not only the balance sheet.
| Area | Bring | Why |
|---|---|---|
| Payroll run in the file | Year-to-date wages, withholding and employer taxes by employee, and unpaid payroll liabilities | Publication 15 tells employers to reconcile Form W-3 totals with the four quarterly Forms 941, or the annual Form 943 or 944. Social Security tax stops at the wage base of $184,500 per employee for the year, so each employee's year-to-date wages have to come across |
| Sales tax | Sales tax payable by state, and by local jurisdiction where the state separates them, plus the last period filed | The state sets the filing frequency (California assigns one; Texas notifies new permit holders), so a cutover inside a period means that return is built from both systems, added by jurisdiction |
| Inventory | Quantity and cost by item, and the valuation method | A change in the inventory valuation method needs Form 3115 |
Keep the payroll and sales tax detail, not only totals. Employment tax records include wage payment amounts and dates and tax deposits, and each state sets its own sales tax record retention period.
A new payroll provider is its own move: switching payroll providers. Filing frequency and due dates: filing sales tax returns. A payable that no longer matches the return: sales tax payable that does not match the return.
How long do I keep the old data, and in what form?
Keep the old data as long as the returns it supports can still be examined or amended, and keep the complete file, not only reports.
Income, deduction and credit records generally need 3 years after the return is filed or due, whichever is later. Employment tax records need at least four years after the tax is due or paid, whichever is later. Records for property you own, such as the asset list, last until the limit ends for the year you dispose of the property. The IRS retention table lists the longer cases, and how long to keep business records explains them.
What to keep:
- The complete backup file of the old system. The IRS requests accounting software backup files early in an examination in most cases where books are kept in software, with the administrator login. It says a spreadsheet copy cannot be tested like the original, and that condensed data is not acceptable for the years under examination.
- A 14-month window. An examiner may request the backup to include the month before and after the year under examination, to test the cut-off. A year-end cutover still leaves those months in two files.
- Exported reports, readable without the old program: yearly profit and loss, balance sheet, general ledger, trial balance, agings, vendor payment and payroll reports.
- Supporting documents kept only as attachments in the old file. The IRS says purchases, sales, payroll and other transactions generate supporting documents holding information you record in your books.
- A description of the system: Publication 583 asks for the machine-sensible records and a complete description of the computerized part, including controls and the chart of accounts.
Store two copies in separate places, and test that the backup opens before the old subscription ends. What to export before cancelling: records to keep when cancelling.
Example
These examples are illustrative and use US dollars.
A consulting S corporation switches on July 1
A calendar-year S corporation on the accrual method switches on July 1 after reconciling June. The old system shows January to June sales of US$180,000 and expenses of US$120,000. The new file opens with the June 30 balances other than receivables, the US$40,000 of open invoices entered by invoice, and the asset list. July to December in the new system shows sales of US$170,000 and expenses of US$115,000.
The return's profit and loss is the two added: sales US$350,000, expenses US$235,000, profit US$115,000. The US$40,000 of invoices is already in the old system's sales, so payments on it in July and August settle those invoices and are not July sales.
A sole proprietor counts March twice
A sole proprietor on the accrual method switches on April 1. Unpaid invoices for March work total US$6,000. She enters the March 31 receivable as a US$6,000 total and also imports the March invoices. The receivable reads US$12,000. The imported invoices also book US$6,000 of March sales in the new file, so any full-year profit and loss that reads the new file from January 1 counts that income twice. The fix is to delete the total and open the receivable by invoice, once, booked against the opening entry.
A freelancer split across two systems
A two-member LLC taxed as a partnership pays a freelancer US$1,500 by check before the switch and US$1,200 by bank transfer after, both for services. Each system shows a payee under the $2,000 threshold, yet the total is US$2,700. The LLC runs a payments-by-vendor report from the old system to the cutover date, adds the new system's report, and, if the freelancer is not a corporation, may need to file a Form 1099-NEC for US$2,700.
Different for you?
- The switch lands mid-year and the file you are leaving runs payroll, sales tax, inventory or several bank feeds: the cutover date, the history that comes over, the full-year numbers and 1099 totals built from two systems, and an opening that agrees with the old file depend on one another, and a mistake in one shows up in the rest. Get bookkeeping help before the move.
- Months before the cutover were never reconciled: the opening balances inherit every error, so reconcile first. See catching up on overdue books and bookkeeping help.
- An account holds foreign currency, or the owner or parent company is outside the US: see foreign currency accounts in US books, books for a US subsidiary of a foreign parent and, for the filings, cross-border tax help.
- You changed accountants too and only have last year's reports: see opening balances after changing accountants.
- Your accounting program is being discontinued: see desktop accounting software being discontinued. If balances broke after the move, see balances off after a desktop to online move and get bookkeeping help.
- You are still choosing the new program: see software your accountant will support and comparing two products.
- Payroll is moving too: see switching payroll providers.
- The new file's settings would change cash to accrual, or how inventory or depreciation is treated: that may be a method change; see switching from cash to accrual accounting and get bookkeeping help.
- The filed year keeps changing in the new file: see closing date after taxes are filed.
- A notice or examination is open: the IRS says condensed data is not acceptable for the years under audit, and a re-keyed file is not a copy of the original books. See an IRS audit of a small business before changing the old file.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Form 1099-NEC reporting threshold for payments made in 2026 Generally, reportable service payments to one payee during 2026; backup withholding can require filing at any amount | $2,000 Tax year 2026 | IRS: Am I required to file a Form 1099 or other information return? Checked |
| Social Security wage base Maximum combined wages and net earnings from self-employment subject to the Social Security part of the tax | $184,500 Tax year 2026 | IRS: Form 1040-ES (2026) Checked |
| General income-tax supporting record retention period Generally after filing or the return due date, whichever is later; longer periods apply in specified cases. Property-basis records last through the limitation period for the taxable disposition year; unfiled and fraudulent returns have no limitation period. | 3 years | IRS: Publication 583, How Long To Keep Records and Table 3 Checked |
| US employment tax record retention Minimum, counted from the date the tax becomes due or is paid, whichever is later | Four years | IRS: Publication 583, Starting a Business and Keeping Records Checked |
Primary sources
- IRS: Publication 583, Starting a Business and Keeping Records
- IRS: Publication 538, Accounting Periods and Methods
- IRS: Publication 334, Tax Guide for Small Business
- IRS: Instructions for Form 3115
- 26 CFR 1.446-1, General rule for methods of accounting
- IRS: Instructions for Forms 1099-MISC and 1099-NEC
- IRS: General Instructions for Certain Information Returns
- IRS: Recordkeeping
- IRS: How long should I keep records?
- IRS: Use of electronic accounting software records, frequently asked questions
- IRS: Publication 15, Employer's Tax Guide
- California CDTFA: Sales and use tax return filing dates
- Texas Comptroller: Sales and use tax
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.