’Tis the season to get busy …but not too busy to think about saving money on next year’s tax bill, and doing a few year-end tasks that might just save you plenty. Here are a few things to consider, but remember that these year-end tax tips will apply differently to individual business owners. Your situation will depend upon your business circumstances and the accounting method you use.
Year-End Tax Tips
- Make sure you end the year with a clear understanding of your firm’s finances. Make time to sit down with your professional tax advisor to review your accounting method and do a little tax planning.
- Check the contributions limits for your retirement plan and make additional contributions (if appropriate) to reduce your personal income for this year. Discuss retirement planning strategies with your tax advisor and financial planner to make sure you are on track and participating in a plan that best suits your circumstances.
- See what action you can take to cut your business’s tax bill in 2008. The best course of action for you will depend three main factors:
- the legal structure of your firm (sole proprietorship, LLC, partnership corporation);
- the income tax rates you expect to pay in the near future;
- your cash flow requirements for the remainder of the year.
Contingent upon the latter, you might defer income until January 2008 (which means you won’t owe taxes on it until April 2009).
- Before year-end, purchase the business supplies you will need in the first quarter of 2008 to maximize your deductions for this tax year.
- Buy any office equipment you’ll need in 2008 now. This will give you the chance to write-off the expenses or start depreciation now (your tax advisor can suggest which option is best for your firm). Don’t delay because the equipment must be in place by December 31 for you to take deductions on it this tax year.
- Write off any inventory items that are damaged. Depending upon your method of accounting, the decrease in market value may provide you with deductions from this year’s tax bill.
- Pay bills and subscriptions early. It may make sense for you to prepay for cell phone service, rent or utilities. Likewise, you might want to pay early for subscriptions to trade magazines or professional journals, for travel planned in 2008, or for scheduled repairs and maintenance.
With a little planning and foresight now, you can probably make some worthwhile business tax savings. Come April you’ll be glad you took the time to do it!