As you make your holiday shopping list, don’t forget about Uncle Sam. It hardly seems like the time to think about business taxes, but planning before year end could save you a lot of money. So, consider stuffing these tax tips in your holiday stocking:
1. Defer Income: Assuming your business is a cash basis taxpayer, any income that you can postpone until January 1st will defer the tax bill nearly thirteen months, whereas income received prior to December 31st will be paid in March or April of the following year. Postpone sending your invoices if your cash flow permits.
2. Increase Expenses: Buy any items your business may need in the near future to maximize the deductions for this year. Pay for goods and services you foresee needing early in the new year, if cash flow permits. For instance, consider the following expense items:
Ø Office Supplies: Stock up on fax paper, printer cartridges, stationary, and other office items.
Ø Pay Bills Early: Pay monthly bills such as phone, cellular services, subscriptions, rent, insurance, and utilities before the new year.
Ø Equipment Purchases: If you will be buying new office equipment, consider purchasing now before year end. You will have to decide whether an immediate write off is best or spread out the depreciation over years. Consult with an accountant to examine your circumstance and company structure to maximize your deductions.
Ø Other Items: This category includes: pre-payment of subscriptions, travel bookings, equipment repairs and maintenance.
3. Contribute to a Retirement Plan: Make payments to your retirement plan or set one up before the year-end to reduce your income for this year. There are many types of plans to choose from including a 401(k), Roth IRA, SIMPLE or SEP. Contributions not only reduce your current income taxes, but earnings are also deferred.
4. Plan now for next year. Establish your budget for next year while you are reviewing your financials for this year. This strategy may not help you with this year’s taxes, but it will certainly help you set your course for next year.
These year-end tax tips will apply differently to each business owner’s situation and accounting method. Take the time to review the best strategy with a professional advisor and make the most of the year-end for your business.