Year-end is extremely exiting for business owners as they asses their current performance and set goals for the next year. Before closing the books, entrepreneurs should take the time to measure their performance and consider some tax hacks that can enhance their financial health. Whether you are looking to smooth earnings or to reduce tax liabilities, here are some interesting year-end tax preparation tricks to close the year and to benefit from additional deductions.
1. Defer income
Revenue recognition can be a complex accounting matter. Nonetheless, it is important to determine whether you would prefer your income to count in the current year or in the next year, since deferring income cuts your tax bill. Strategies to smooth earnings include deciding whether to push for sales before or after year-end.
2. Spend money
Year-end is a great time to spend money. You know exactly how much budget you have left for making purchases in each line item category, and you can safely spend without going over budget. You can upgrade some equipment or stock up on office supplies to expense your purchases in the current year in order to maximize your deductions.
3. Count your inventory
Run an inventory check to count the obsolete inventory and to measure theft. You can write off these amounts to reduce tax liabilities. It is wise to make a strategic plan for next year in order to add controls and to reduce theft. It is also a good idea to review forecasts and to revise purchase order quantities.
4. Write off bad debt
Most business owners come across bad debts which are old and unrecoverable for a handful of reasons. You are entitled to a tax deduction for the amount of the write-off, and the timing of this decision affects the year in which you reduce your tax liability.
5. Contribute to a retirement savings plan
Contributing to a retirement savings plan reduces your income tax liability and offers the opportunity to plan for old age. It is important to calculate the limits of your voluntary contributions and to maximize the tax breaks in order to secure a comfortable annual income when you retire.
6. Give to charity
The most successful entrepreneurs value philanthropy and show an altruistic concern for human prosperity. The good news is you don’t need to be Bill Gates or Warren Buffet to give to charities and to benefit from a tax deduction. Apps like GiveEasy.org simplify campaign engagement and donations from their fundraising communities.
It is important to note that the financial information provided in this blog is for informational purposes and not for the purpose of providing specific accounting advice. You should contact an accountant to obtain specific advice tailored to your business needs.