Top 5 Tax Planning Moves for End-of-Year

Tax time is no fun for business owners, but as it approaches it can pay off handsomely to consider actions to minimize taxes in the current and future years. Time is well-spent during the fourth quarter in considering these tax planning moves.

Review your business entity:

Whatever your business entity structure, sole proprietorship, partnership, LLC, S-Corporation, or C-Corporation, every year there should be some consideration as to whether that structure is still appropriate for the business. Business growth often means that the simpler entities like sole proprietorships may want to consider a change for taxation or liability reasons. It is less common for full corporations to make changes in entity structure, but there could be other changes to how the business is managed, especially if market changes so dictate.

Review retirement plans:

Perhaps you have no formal retirement plan, and that leaves open some opportunities to save tax dollars by starting one before the tax year ends. For businesses with employees, establishing retirement plans can help in retention and in attracting better employees in the future.

If you have retirement plans in place, such as 401(k)s, check the contributions of employees and your matching, if any. If employee contribution levels are low, are there reasons that can be addressed? Are you matching at levels that maximize employee interest and minimize business taxes? Should you consider moving from a defined contribution plan to a defined benefit plan to maximize growth over time? Consider the time spent in reviewing all retirement plan options toward the end of the tax year as important for possible major tax savings.

Assess your bookkeeping and tax preparation process and services:

Are you keeping a box full of receipts to dump on a bookkeeper at the end of the year? Even if you are better organized and your process feeds documentation to your bookkeeping function on a regular basis, are they giving you feedback about expenditures and deductibility or depreciation decisions? If you are feeding information to your bookkeeper with software or online, are you getting any reports during the year to see where you are?

Understanding where you are tax-wise before the end of the year can be critical in that you may want to delay a major purchase or expense into the next tax year or accelerate it into the current tax year. Where you are income-wise can make this decision quite important.

Do you have first year bonus depreciation opportunities:

The TCJA (Tax Cuts and Jobs Act) put in place new opportunities for small business owners to take a 100% first year bonus depreciation deduction for qualified new or used property acquired and placed into service in the tax year. You may be able to deduct the entire cost of major equipment, machinery, or vehicles.

Get proactive with tax planning for 2022 and beyond:

There are perhaps more business tax proposed changes swirling around in government in 2021 than in any single tax year in the past. From capital gains to corporate income taxes, there are proposals to increase revenue though higher taxes on business. Get with tax advisors for planning that will help you to grow your business during taxation upheaval.

A little planning can go a long way toward saving you tax dollars and some stress along the way.

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