Year-End Tax-Planning Checklist for Small Businesses

As we get closer to the end of the fiscal year, we become consumed with thinking about taxes. For this reason, year-end is a perfect time to think about business planning for the upcoming year.

Given that you’re already in the mindset to address bookkeeping issues, it makes sense to do some analysis and make some decisions to ensure that your business prospers over the coming year.

Business owners need to get their books in order. For some, this might be a challenge. If you don’t already have a good bookkeeper, find one that can help you get all your records and files organized. Unfortunately, you have to get this step done before moving forward.

It is a good idea to check with your accountant to see if there is anything you should be doing to ensure your business ends the year fiscally healthy. It is important to understand the changes taking place within the tax year. A couple of small changes can make a difference in your income and final tax liability for the year.

Ask your bookkeeper or accountant to run all of the reports that are relevant for your business, and schedule a time to walk through them together. This process will help you understand the position your business is in.

One strategy that the small-business owner can use is deferring income. Shifting income to after Jan. 1 delays it from being counted as income until the following year. This approach can save the small-business owner a significant amount of money, depending on the income level from year to year. Consult with your accountant to see if it makes sense to defer December receipts until January to reduce your tax bill.

Also, consider accelerating your business deductions to cut your tax bill by bulking up on your deductible expenses. If possible, expense everything you possibly can, and write the checks out before the end of the year so you can get them as a deduction in 2017. This includes deductible payments for rent, phone bills, car payments, and any other business-related expense items.

Another strategy can be to make a list of equipment purchases you can make now to get the most out of your deductions. It is important to maximize your deduction by purchasing assets while simultaneously reducing taxable income. This approach should be used from year to year.

There can be movement in the market value of your inventory, which may enable you to claim an additional deduction. Of course, this approach is highly dependent on your accounting method, so you will need to check with your accountant to see if this is a possibility. It never hurts to look at your inventory from year to year to see if a deduction is available.

One of the best areas to make an allocation is into your retirement plan before Dec. 31. Make sure you are fully funding your company’s retirement accounts. This is one of the surefire ways to reduce your taxable income for this year.

The small-business owner should make certain to max out this contribution. In the event that you don’t have a retirement account already set up, talk to your accountant or financial adviser to determine which plan is best for your business. Then run like a gazelle and set it up to make the max contribution for your business.

Making a donation to a charitable organization is a wonderful gesture during the holiday season. Likewise, it can also be a good idea for your business finances. You can donate money, clothing, toys, equipment, or other goods while claiming a taxable deduction for the fair market value.

Check with your accountant to make certain that the item is tax deductible and, of course, retain the receipt for your records. A timely year-end donation can help the community and provide you with another valuable deduction against your business’s taxable income.

Ask your accountant to find out if you carried over any capital losses from the sale of investments from last year. If you have any carryovers, these losses will be available to offset current-year capital gains.

Tax-loss harvesting involves selling securities in your portfolio at a loss to offset capital gains. Seriously consider harvesting your losses by selling taxable investments, but remember that short-term losses are most effective at offsetting capital gains.

Also, it is advisable to wait at least 31 days before buying back a holding sold for a loss to avoid the IRS wash sale rule.

It is never too early to start thinking about the coming year by outlining a system you can use to make the process even smoother next year. You should work with your accountant or financial planner to help assemble a reliable checklist that can be used from year to year. By doing this, you will maximize all the deductions possible and not miss the opportunity to maximize shareholder value in your business. BW