3 Year End Tax Tips For Small Businesses

It’s that time of year again. Time to review the past year and identify strategies that worked and the ones that didn’t.. A time to start forecasting for the future, referring to actuals for reasonable budget estimates. A time to cash flow annual employee bonuses. Yes folks, it’s year end.

These are things most business owners are thinking about as December 31st or fiscal year end approaches. But one thing that’s often overlooked is what needs to be done to optimize the company’s position when it comes time to file the tax returns.

We’ve put together a list of three year end tax tips to help you get your financial house in order ahead of tax season. Let’s dive in!

Year End Tax Tip #1 Don’t Skip Meeting With Your Accountant

If you do nothing else, set up a meeting with your accountant to discuss tax strategies before year end.

Why? Because with a little forecasting and tax planning, you could save your company thousands of tax dollars (and penalty payments), and you can do some cash planning to avoid a crunch in Q1.

Tax Deductions

Your accountant is up to date on all the current tax laws, including ones that allow certain advantageous deductions of which you may not be aware.

Know what your options are if you’re planning to buy equipment in the next few months. It may make sense to purchase it before year end and take the depreciation, or it may make sense to wait until the new year.

You may want to run the numbers and reap certain  tax benefits under Section 179, which has a deduction limit of $1,000,000.

Deferred Income

If your company books run on an accrual or modified cash basis, talk to your accountant about whether it’s possible to defer income. Deferring income could be the key to maintaining a healthy cash flow as you head into the new year.

Payroll Taxes and Compliance

If you’ve been drawing down on cash assets to pay yourself throughout the year, you’ll need to run a year end payroll to reflect your income and to pay the appropriate employee and employer payroll taxes.

Waiting until after the deadline can cause headaches— and big bucks. Your accountant can help you gross up those draws and make state and federal payroll deposits on your behalf ahead of tax deadlines.

Plus, if you meet with your accountant in advance, you can cash plan to accommodate these upcoming expenses.

Bottom Line:

Don’t put off meeting with your accountant at year end. You’ll probably regret it when the taxman comes calling!

Year End Tax Tip #2 Get Your Books In Shape

You and your accountant can’t make realistic, accurate projections for tax planning if your books aren’t up to date. So add your books to that new year’s resolution to get in shape.

Reconcile Your Accounts

Make sure your cash, credit card and any line of credit accounts are reconciled through the most current month prior to your meeting date with your accountant. (That includes PayPal and any other balances that affect the financials.)

You can’t make accurate cash and tax projections if your cash or liability accounts are misstated on the financials. And you probably don’t want to stay up until dawn catching up on a year’s worth of data entry at the eleventh hour.

Shoeboxes Are For Shoes

You don’t want to show up to your accountant’s office with a shoebox full of a year’s worth of receipts and nothing recorded in the books.

Aside from reasons listed above, your accountant may not have the time or resources available to get that information entered before the deadline which may mean you’ll have to file for an extension. And you’ll want organized records for audit trail purposes.

Plus, it’s just not a good leverage of your resources to pay a highly skilled accounting professional to do the work of an accounts payable or receivable clerk.

Retained Earnings

Compare retained earnings from the prior year to make sure there are no changes to the ending balance.

If there’s a difference, it means you’ve made entries affecting prior year numbers, which have already been reported to state and federal agencies on your tax returns. Ask your accountant about how to correct this problem.

Bottom Line:

If you want accurate projections, get your books up to date!

Year End Tax Tip #3 Charitable Giving

It’s not just about tax deductions, of course, but giving to your favorite charity can in fact reduce your tax liability.

Plan Your Giving

Take time to give some thought to which charity or charities support a mission that’s important to you. Corporate giving should be intentional, not last-minute.

Do your due diligence to make sure the charity is reputable, and know before you donate whether or not contributions are tax deductible.

In Kind Donations

Donations don’t necessarily have to be in the form of cash.

Consider holding a year end food or clothing drive in the office and donate the items to a reputable charity, or donate an item to a charity’s silent auction.

Most in-kind contributions can be claimed as a deduction for the fair market value of the items donated.

Get Proper Documentation

Charities generally send out thank you letters to donors along with a record of the cash or in-kind donation. Follow up with them if you haven’t received one.

These letters should also contain the organization’s tax identification number, and confirm whether the donation is tax deductible..

Bottom Line:

Not only does charitable giving support a cause that’s important to you, it can provide a tax deduction and it lets the community know you’re a good corporate citizen.
Whether you need help with tax planning, tax preparation or business consulting services, we invite you to visit our website, or give our offices a call at (804.525.4259).