This time of year many companies are tackling the daunting task of tax planning. However, this part of managing your business doesn’t have to be one of those pull-your-hair-out, give-you-a-headache kind of tasks. Rather than looking at tax planning as a chore, try instead to consider this an opportunity to assess your business’ activities and determine year-end profitability.
While it’s always healthy and positive for a business to end the year in the black (profitable), profits also mean taxes and we can all agree nobody likes to pay taxes. Use tax planning as an effective method to help reduce your tax liability.
The best way to reduce your tax liability is to make sure you have maximized your deductions – in other words, you have considered all tax deductions that are applicable to your business. Your accountant will review deduction scenarios with you during your tax planning meeting, but the following considerations are just a few basic areas to get you in the right mindset:
Income now? Income later? Known as deferred income, this is something to review with your accountant and determine if you can reduce your taxable income by recognizing your income after January 1st. Reducing taxable income may reduce your tax liability (and that’s a good thing!).
Write off bad debts. The end of the year is a good time to review your accounts receivable and determine if there are any clients who haven’t paid you in a while. There may be receivables you know are un-collectible and therefore deemed as a bad debt. Writing off those receivables as bad debt will essentially reduce your income.
Now is the time to invest in new technology! Need to stock up on office supplies like updated computers or software? Do it now! Any purchases you can make before December 31st will help maximize your deductions. These can be cash or credit card purchases.
Have you donated lately? Charitable contributions are not only a compassionate act, but they can also help your bottom line! Remember, you don’t necessarily have to give money, you can always donate items. This might be a great time to give away that desk in your office that’s just collecting dust, or some old computer monitors that aren’t being used anymore. Remember when donating to get documentation and keep your receipt.
Every business is different, so certain deductions may or may not be applicable to your business. Be sure to discuss with your accountant the many deductions that may be available to you and have them thoroughly review your company’s financials and tax situation.