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5 Year-end Small Business Tax Tips
Quick Tax Tips Before the Year Ends
As the holidays quickly approach it's hardly a time to think about small business taxes. But a quick look at these year-end tax tips for small business can pay big dividends.
1. Update Your Accounting: It's important as part of your year-end tax strategy to have a good understanding of your company's financial situation. Spend extra time ensuring your books are up-to-date and accurate. It won't hurt to plan time with your accountant for year-end advice, particular to your operations.
2. Defer Income: Any payments your company can receive during the first week of January as opposed to December cuts your tax bill. Every cent deferred until January 2017 will not owe taxes until April 2008. Any deferral strategy will depend on your profit and losses for the year and business legal structure (Self-employed, partnership, corporation, etc.)
Depending on your income tax rates in the foreseeable new year, deferral of income can make the best sense for many sole proprietors, partnerships, INC’s, and corporations.
Don't forget to push any early 2017 charitable donations back to 2016. Make sure you get a receipt for the tax deduction.
3. Increase Expenses: Purchase items your business will require in the immediate future to maximize deductions for this year. If you can see a need for goods and services in the first quarter of the new year, buy them now, if cash flow permits. Consider the following items for expenses:
Office Supplies: Stock up on fax paper, printer cartridges, stationary, and other office items.
Pay Bills Early: Pay your bills before the new year in areas such as; cell services, subscriptions, rent, insurance, and utilities.
Equipment Purchases: If you will be buying new office equipment, consider purchasing now. You'll 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. In addition, your equipment will have to be in your office, "in use" by year-end.
Other Items: This category includes: pre-payment of subscriptions, travel bookings, equipment repairs, and maintenance.
4. Inventory Write-Offs: Depending on your accounting methods, you may wish to check inventory for goods that have been damaged or have become obsolete. The drop in market value of the inventory can provide your company with added deductions.
5. 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. Check the contribution limits for your type of plan. In the U.S.: KEOGH plan, Roth IRA, or SEP's. (For SIMPLE IRA's the deadline is set in October, too late for year-end tax planning.) In Canada: an RRSP. Discuss the best strategy with your financial planner or accountant.
These year-end tax tips will apply differently to each business owner's situation and accounting method. The cash method of accounting allows for deductions and income reported for the year they are paid or received. The accrual accounting method applies income and deductions in the year incurred. Take the time to review the best strategy with a professional advisor and make the most of the year-end tax planning for your small business.
Acknowledgement to Darrell Zahorsky.
1. Update Your Accounting: It's important as part of your year-end tax strategy to have a good understanding of your company's financial situation. Spend extra time ensuring your books are up-to-date and accurate. It won't hurt to plan time with your accountant for year-end advice, particular to your operations.
2. Defer Income: Any payments your company can receive during the first week of January as opposed to December cuts your tax bill. Every cent deferred until January 2017 will not owe taxes until April 2008. Any deferral strategy will depend on your profit and losses for the year and business legal structure (Self-employed, partnership, corporation, etc.)
Depending on your income tax rates in the foreseeable new year, deferral of income can make the best sense for many sole proprietors, partnerships, INC’s, and corporations.
Don't forget to push any early 2017 charitable donations back to 2016. Make sure you get a receipt for the tax deduction.
3. Increase Expenses: Purchase items your business will require in the immediate future to maximize deductions for this year. If you can see a need for goods and services in the first quarter of the new year, buy them now, if cash flow permits. Consider the following items for expenses:
Office Supplies: Stock up on fax paper, printer cartridges, stationary, and other office items.
Pay Bills Early: Pay your bills before the new year in areas such as; cell services, subscriptions, rent, insurance, and utilities.
Equipment Purchases: If you will be buying new office equipment, consider purchasing now. You'll 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. In addition, your equipment will have to be in your office, "in use" by year-end.
Other Items: This category includes: pre-payment of subscriptions, travel bookings, equipment repairs, and maintenance.
4. Inventory Write-Offs: Depending on your accounting methods, you may wish to check inventory for goods that have been damaged or have become obsolete. The drop in market value of the inventory can provide your company with added deductions.
5. 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. Check the contribution limits for your type of plan. In the U.S.: KEOGH plan, Roth IRA, or SEP's. (For SIMPLE IRA's the deadline is set in October, too late for year-end tax planning.) In Canada: an RRSP. Discuss the best strategy with your financial planner or accountant.
These year-end tax tips will apply differently to each business owner's situation and accounting method. The cash method of accounting allows for deductions and income reported for the year they are paid or received. The accrual accounting method applies income and deductions in the year incurred. Take the time to review the best strategy with a professional advisor and make the most of the year-end tax planning for your small business.
Acknowledgement to Darrell Zahorsky.