It’s the end of the year. Soon, you’ll be able to see how well your business did this year and create plans for the following months. In the final quarter of the year, it’s critical to have a plan in place to iron out your goals and to ensure you can properly observe just how well your company did. Small business tax planning is another big component of the end of the year – you need to be ready to submit your information to your accountant to ensure you meet all end-of-the-year requirements.
Here are the top 20 strategies to put in place now.
#1: Stock Up and Pre-Pay
There are two simple steps here in one. Maximize all of the savings opportunities heading into the new year. For example, purchase the office supplies your company is likely to need now or inventory to sell. It’s also a good time to pre-pay any way you can, such as on your insurance, rent, or mortgage. Consider setting up and paying for services and subscriptions you use now as well. It’s going to reduce your tax obligations in the coming months and make the tough month of January a bit easier to manage. These are all costs you’ll likely still have and materials you need, but paying for them now may help reduce some of your costs later while giving you a bit of a tax break.
#2: Determine the Proper Tax Treatment for Your Company
#3: Take Advantage of Tax Rules
2021 has been an interesting year for taxes. One thing you may notice is that there are a number of new small business tax deductions. These may help to reduce some of your costs – but be sure you qualify for them. For example, there are new temporary exceptions for meals expense deduction limits. That means that some companies may be able to deduct 50 percent of the cost of such meals while they deduct the full cost of ordinary and necessary expenses. Now, that’s been upped to 100 percent in some cases. That is definitely a savings for many organizations.
#4: Check Out the NOL Rules
#5: Consider Establishing a 401K
#6: Lose Bad Debts
#7: Consider the Employee Retention Credit
#8: Talk About Taxes Paid
If you have not done so yet, it may be a good time to talk to your accountant about when you are paying taxes and how you are doing so. Most companies should be making estimated payments throughout the year. This can help to reduce the tax burden later. Most often, you can base estimated taxes on the prior year’s income. That can help you to preserve cash flow if this year you are seeing a bigger revenue stream (and may owe more). Be sure to set up a way to make these payments now, so you are not charged a fee later.
#9: Consider Equipment Deductions
#10: Consider an Accelerated Income and Expense Deferral
#11: Write Down Obsolete Equipment and Inventory
Take some time to calculate your inventory and equipment. If you have equipment that is no longer beneficial to your company, worthless, obsolete, or even damaged, it may be time to take it off the accounting records. Doing so may help to boost your expenses and, as a result, reduce your tax liability on those items.
To do this, you need to have a list of all of your equipment. You then need to mark those items as obsolete, out of date, worthless, damaged and unrepairable, or otherwise damaged. Then you will need to consider the expenses as they relate to them. Work with your accountant to ensure you get the right information in place to take full credit for items like this.
#12: Give Your Employees a Bonus
#13: Charitable Contribution Deductions
#14: Bonus Depreciation May Help
#15: Take a Look at Your Books
For companies that may have been using the same accounting software or tools year after year, it may be time to take a closer look. Are you using an accountant for your books or trying to process these changes – and all of them – on your own?
For the 2021 tax year, it is likely to be much more complex to manage taxes due to all of the new tax laws to aid companies during the pandemic. It may be time to hire an accountant to ensure you are getting the most out of your investments. If you are already using an accountant, set up a meeting to discuss options for improving your company’s outcomes and see if there is any way you can reduce liability. If you are keeping your own books and records, consider taking an online accounting course for small business owners to optimize your accounting process.
#16: Take a Profit and Loss Glance
#17: Review Salaries
#18: Set Up for Success for Next Year
#19: Review Insurance Products
#20: Update Your Accounting Software
How much do you really know about what is happening financially in your company month to month? If you are like many companies, you don’t have that information readily available. However, new accounting software is incredibly fast and efficient, allowing you to gain more insight in real-time, which facilitates better decision-making.
Year-end tax planning for small business owners does not have to be complex, but it is something you should do now. Don’t avoid it. It may help you to ensure your business will be profitable in the coming year. It may also help you take advantage of all opportunities in this year’s tax rules.
Disclaimer: Please keep in mind that the content of this post is not intended as tax, accounting or legal advice. The information presented here is for informational and educational purposes only. Before engaging in any transaction, be sure to discuss these matters with a trained, licensed professional.