Year-end taxes are an essential part of tax planning for all individuals and businesses. Even if you’re a small business owner or self-employed with no other employees on your payroll, you can remarkably affect the amount of tax you pay at the year-end depending on the amount of preparation and planning you add into business tax management. By being mindful of your taxable business income and planning, you can leverage the timely tax breaks, utilize tax deductions as a motivator to reward both your employees and yourself, and strategically manage your profit and spending. These six strategies will help you with successful year-end tax planning for your business.
1. Invest in assets, business supplies, and equipment
At the fiscal year-end, businesses can scale down their taxable revenues by buying assets, supplies, and equipment used in the upcoming year. This can be a perfect way to lessen your taxes built upon in one year of tax, particularly when you anticipate that tax year to have higher tax revenue than the following year.
2. Make a checklist of services you will need in the coming year
Just like investing in business assets and equipment, you may plan to prepare for the many services that you will be using in the subsequent year. It can consist of association dues or professional memberships, business insurance, fixed/ guaranteed expenses, and business rent.
3. Write down unpaid bad debts
Certain unpaid, aged accounts may be eligible to be written off on your taxes. This can be done when an amount owed by a client has not been paid and is expected to stay unsettled. You can shrink your business’s tax burden for the current tax year by writing this debt off. This whole procedure involves some potential barriers, including the truth that if the client ends up paying their bill in the future, you must reverse the write-off you did for yourself on the taxes. To ensure this process is perfectly managed, it’s best to handle bad debts following your tax adviser.
4. Boost income or postpone earnings based on profit projections
When it’s about year-end revenues, businesses use some creative accounts to boost income, asserting revenues early to enumerate them in the current tax year. This is done to declare what you expect will be a reduced tax rate, economizing your business in the long run. Contrastingly, you can choose to postpone particular things into the following year, which drives that income into the 2022 calendar and provides your business with some much-needed tax relief for the current tax year – although expectantly saving money on taxes unpaid in the long run, if the coming year’s taxable revenue is reduced.
5. Use bonuses and retirement contributions to minimize obligations
Some businesses may decide to give retirement contributions or end-of-year bonuses to their staff at the end of the year, leveraging a tax break on these bonuses or funds. If your business doesn’t offer a retirement plan currently, particular tax breaks exist to make this more financially attractive, and what time can be better to set this plan up than the end of the tax year?
Don’t fall victim to poor business tax planning. Irrespective of the size, every business should think ahead to minimize how much they owe to Uncle Sam and plan out the taxes. With proactive tax planning, you can account for updated tax law changes and leverage other business deductions that lower your taxes owed.
