The end of a year means different things to different people. It’s of the utmost importance for business owners to figure out if the company is ending the year on the right foot. Consulting your accountant will allow you to figure out if your business is doing enough to avoid the taxman. The Balance SMB notes that companies can time their year-end taxes and expenses together and take steps to prevent them from causing a financial strain on the company. Here, we examine five year-end tax tips that small business owners should consider to set their businesses up to head into the new year.
1. Review All Your Business Reports
Did your business do well this fiscal year? This information can help you to determine what you were doing well and where you could have improved. The end of the year allows you to sit with your accountant and go through your books. This detail ensures that all of the information there is up to date. It would help if you sat with your accountant after they’ve delved into your reports to get a status update. Any issues they find should be fixed before the year closes out.
2. Defer Income
Year-end taxes usually check any business income before the end of the year as “this year’s” income. Deferring income means shunting the payment to prevent it from showing up until January of the following year. In some cases, shifting this payment around can mean the company pays lower taxes. Depending on how much income the business made in December of this year, you may want to consider deferring it to January of next year, just to avoid having to pay extra taxes on that money.
3. Check Your Inventory
Inventory checks may be one of the most tedious prospects for a business, but they should be done often. A discrepancy in inventory, if not found, could throw the business’s books entirely out of balance. If the company is audited, you may need to account for missing stock. Additionally, discrepancies within the inventory can be a sign of embezzlement or fraud from workers or suppliers. If your merchandise listing is complete, but there has been a drop in its value, you may be able to claim deductions on it on your taxes.
4. Make a Few Purchases
Now is the best time for a business to purchase equipment that it can use. Each business purchase can be deducted from taxes as part of the machinery of the company. If you can make a few vendor payments in advance, you should also deal with those now since they can count towards the write-off. Making a list of the equipment and upgrades you want to buy can make a massive difference to your tax bill.
5. Build Your Retirement Plan
Retirement plans are an excellent place to store money so that it doesn’t get taxed. If you don’t have a retirement plan, you should set one up before December 31st to see if you can avoid a considerable swathe of taxes. A financial advisor can help to outline what benefits a particular retirement plan has and whether it’ll be beneficial to you in the long run. Retirement funds write-offs can be a godsend if you’re looking for a place to store extra money where it won’t be taxed. However, these plans do have a limit, which your advisor will let you know about.
Staying Ahead of Taxes
Businesses have to be smart when it comes to dealing with taxes. It would be impossible for you to avoid all taxes, but that doesn’t mean you have to give into taxation on everything you earn. Smart business owners know how taxes can be lessened or avoided. Usually, financial advisors can inform you of the best strategy for opening retirement funds or avoiding probate. This information usually isn’t common knowledge but can be helpful in many situations. Staying on top of the ever-changing rules and following these year-end tax tips will help.