6 Year End Tax Planning Moves to Make Now
It happens each year like clockwork: You tell yourself that this year you won’t procrastinate, and you’ll get a head start on tax planning for next year. Then, somehow, it’s three months later, and you’re scrambling to get it together at tax time.
This is the year that stops. You’re going to get a head start (for real, this time), so you know exactly what you need to do when the end of the year rolls around. And you’re going to get it done with our year-end tax planning checklist so that you can enjoy end-of-year festivities and, hopefully, some well-earned time off!
Mark your calendar now
The end of the year fills up quickly with tasks and meetings. So go to your calendar now to schedule some dedicated year-end tax planning time for each week in December. Doing it now prevents you from trying to squeeze it in later (or forgetting about it altogether). Remember, the earlier you start, the better prepared you’ll be.
Review financials and make projections
Now’s the time to start preparing your financial statements so you can find out how well your business is doing. Gather the following statements together:
Balance sheet
Cash flow statement
Income statement
Profit and loss statement
Statement of retained earnings
Use these reports to see gains and losses throughout the year, and spend time digging into the causes of gains or losses to help set financial goals for the next year.
Defer or accelerate income
Based on your findings from your financial reports, determine whether to defer income to the following year or accelerate income for the current year. Deferring income (if you don’t have an immediate need for the cash) to the next year is helpful if you expect to be in a lower tax bracket. If business is going well and you expect to move to a higher tax bracket next year, collecting payments this year will be taxed at your current rate.
Establish or contribute to retirement accounts
If your business has a retirement plan, you’re already a step ahead. If not, now’s the time to establish and start contributing to a retirement account. Contributing to retirement plans, such as a 401(k) or IRA, can help reduce taxable income. If you’re not quite there yet, that’s okay, too. Only set up a retirement account if it makes financial sense. Otherwise, leave it on the list to consider next year.
Deduct obsolete inventory and uncollectible debts
In any business, you’ll run across customers who don’t pay their bills or have inventory that just doesn’t sell. While neither scenario is great, there is good news—obsolete inventory and uncollectible debts are deductible, depending on your business model. Be sure to keep stellar records of any expenses you deduct.
Set up a tax planning appointment
To make sure your business is prepared for tax time, set up a time to talk with your accountant or tax preparer before the end of the year. They’ll be able to walk you through everything you need to prepare for tax season, give you advice on decreasing liabilities and increasing your tax refund, and most importantly, make sure your tax return is free of errors.
Start planning now
It may seem silly to start thinking about next year’s tax planning in September, but the more you plan now, the less frazzled you’ll feel at the end of the year. (Bonus: Your accountant will thank you!) Get started now and make this your most prepared tax season yet.
