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The Gift that Keeps on Giving: Tax Moves You Should Make Before the Year Ends

· Bookkeeping Tips

“People who complain about taxes can be divided into two classes: men and women.” – Unknown


As the year draws to a close, it's not just about decking the halls and sipping cocoa; it's also the perfect time to cozy up with some seriously savvy tax-saving moves for your business. We get it, taxes might not be the jolliest of topics, but trust us, these tips are like little presents waiting to be unwrapped – and they can save you a bundle!

In this guide, we're ditching the jargon and diving headfirst into straightforward, no-nonsense strategies that can put more green back into your business's pocket. Whether you're a newbie to the tax game or a seasoned pro, we're here to demystify the year-end tax dance, making it a breeze to navigate.

From turbocharging deductions to unlocking hidden credits and everything in between, consider this your backstage pass to maximizing your tax savings before the clock strikes midnight on December 31st.

So, grab your favorite holiday mug, settle in, and let's sleigh those taxes together! 🎄✨

Accelerate Deductible Expenses:

You know those business buys you were planning for next year? Well, bringing them forward and getting them done before New Year’s Eve can actually save you a chunk on taxes. The trick here is to deduct these expenses from this year’s taxes, which means less taxable income and less tax to pay. Click here for a Guide to Deductions.

  • Accelerate Deductible Expenses: Consider making purchases for necessary equipment, supplies, or services before the year-end to deduct these expenses from your current year's taxes.
  • Prepay Expenses: Paying for next year's expenses now can allow you to deduct them this year.

Capital Investments:

This one’s a win-win! The government wants to see your business grow, so they offer cool incentives to encourage it. Ever heard of Section 179? It’s like a magic ticket that lets you write off the full cost of certain equipment or software you buy for your business. Bonus: There’s also something called bonus depreciation if your purchases go over the Section 179 limits, so you can still get some sweet tax breaks. These types of capital purchases are not only a great way to reduce your tax liability, they’re also an investment in your business!

  • Section 179 Deduction: Utilizing Section 179 allows small businesses to deduct the full purchase price of qualifying equipment or software, up to certain limits, reducing taxable income immediately, rather than depreciating it slowly over time.
  • Bonus Depreciation: Even if the Section 179 limits are exceeded, bonus depreciation permits a percentage of the asset cost to be depreciated, providing additional tax savings.

Retirement Plans:

Saving for retirement doesn’t just secure your future; it’s also a sneaky way to pay less tax now. The more you contribute to a retirement plan, the less of your income the taxman gets his hands on. It’s like saving money while saving money!

  • Tax-Deferred Savings: Contributing the maximum allowable amount to a retirement plan not only helps secure your future but also reduces your taxable income for the current year, providing immediate tax benefits.
  • Profit-Sharing Contributions: When your business does well, and there’s some extra profit hanging around, you can share that with your team through a profit-sharing retirement plan. Here’s the magic: the contributions you make to this plan are tax-deductible for your business. It’s like giving out bonuses while also reducing your taxable income. Plus, it's a great way to attract and retain top talent because who doesn’t love a boss that shares the profits? And the best part? You have flexibility here. You can decide each year how much (if any) to contribute based on your business's performance. So, it’s not just a tax-smart move; it’s a fantastic perk that keeps your team happy and motivated while helping you save on taxes.

Tax Credits:

Think of tax credits as special discounts on your taxes. There are some nifty ones out there for businesses that do things like research, use energy-efficient stuff, or even hire certain folks. They're like little gifts from the IRS to say thanks for being cool and doing cool things. Identifying and claiming eligible tax credits directly reduces the amount of tax owed. For instance, research and development credits or energy-efficient property credits can significantly lower tax liability.

  • Research and Development (R&D) Credit:This credit rewards businesses that innovate. If you’re working on new products, processes, or technologies, you might qualify. It’s a credit for expenses related to R&D, giving you a nice boost for being inventive.
  • Work Opportunity Tax Credit (WOTC):Hiring certain employees (like veterans or individuals from specific target groups) can earn you this credit. It’s an incentive to encourage businesses to hire from diverse backgrounds.
  • Energy-Efficient Property Credits:Going green can pay off! Installing energy-efficient equipment or making environmentally friendly upgrades to your business premises might snag you this credit.
  • Disabled Access Credit:If you’ve made your business more accessible for people with disabilities by removing barriers or installing accommodations, this credit can help offset those expenses.
  • Employer-Provided Childcare Credit:Offering childcare services or facilities for your employees can make you eligible for this credit, which helps cover a portion of the costs you incur.
  • Small Employer Health Insurance Credit:Small businesses offering health insurance coverage to employees might qualify for this credit, making it more affordable to provide healthcare benefits.
  • Low-Income Housing Credit:This one’s for businesses investing in affordable housing projects. It’s a credit meant to encourage the development of housing for low-income individuals and families.

Bad Debt Write-Offs:

Got some unpaid receivables that are basically ghosts haunting your accounts? Well, you can sweep them away and lower your taxes by writing them off as bad debts. Less money owed to you could mean less taxable income. This one depends on your filing method, so be sure you qualify prior to taking the write-off!

  • Accrual Basis: Writing off bad debts decreases the amount of income subject to tax, thus reducing taxable income for the current year.
  • Cash Basis: Cash basis businesses are not eligible to write off bad debt, because the invoices were not previously included as income and therefore was not subject to tax in the first place.

Inventory Adjustment:

Here’s a trick – if you’ve got stuff in your inventory that’s just collecting dust, it might be time to say goodbye to it. Writing down the value of old or unsellable inventory can actually shrink your income, thereby reducing your tax basis. Think of it as decluttering your taxes!

  • Obsolete Inventory:Got products gathering dust on the shelves or materials that aren’t going to be used? Writing down their value to reflect their reduced market worth can lower your taxable income. It’s like acknowledging that these items aren’t worth as much as you initially thought, so they shouldn’t count as heavily toward your profits.
  • Assess Damaged or Spoiled Goods:If you’ve got inventory that’s damaged, expired, or spoiled, it might not have the value you initially assigned to it. Adjusting the value of these items to reflect their current condition can help reduce taxable income.
  • Lower Cost of Market (LCM) Adjustment:Sometimes the market value of your inventory might drop below the cost you initially paid. Lowering the value of your inventory to the current market value can be a smart move, though there are specific rules around when and how this adjustment can be made.

Charitable Contributions:

Share some love! Besides feeling good, donating to charities can also give you a sweet tax deduction. It’s a win for your community and a win for your wallet, all in one.

  • Recipient Organization:The charity or organization you’re donating to must be qualified by the IRS. Most nonprofits, religious organizations, and certain government entities qualify. You can check an organization's status using the IRS’s Tax Exempt Organization Search tool.
  • Documentation:To claim a deduction, you’ll need proper documentation. For contributions under $250, a receipt or acknowledgment from the charity is usually enough. For donations over $250, you'll need a written acknowledgment from the charity detailing the donation amount, description of the gift, and whether you received anything in return.

Estimated Taxes and Withholdings:

This one’s like staying on track with your bills. If you keep up with your estimated tax payments, you won’t have to pay extra fines later. It’s all about managing your cash flow and avoiding unnecessary fees. Reviewing and adjusting estimated tax payments ensures you've paid in enough throughout the year to avoid underpayment penalties, optimizing cash flow and avoiding unnecessary expenses.

  • Underpayment Penalties:The IRS expects taxpayers to pay taxes as they earn income. If you don’t pay enough through withholding or estimated tax payments, you might face underpayment penalties. These penalties are typically a percentage of the underpaid amount and are calculated based on how much you owe and how late the payment is.
  • Interest Charges:On top of penalties, the IRS might also charge interest on the underpaid amount. This interest accrues from the due date of the underpaid tax until the date it's paid in full. The interest rate is determined by the IRS and can change quarterly.
  • Safe Harbor Provisions:There are "safe harbor" rules that can exempt you from underpayment penalties if you meet certain criteria. For instance, if your estimated tax payments equal at least 90% of the current year’s tax liability or 100% of the prior year’s tax liability (110% if your AGI exceeds a certain threshold), you might avoid penalties.
  • Adjusting Payments:If you realize you’ve underpaid, it’s better to adjust your remaining estimated tax payments to make up for the shortfall. Paying more in the remaining installments can help mitigate penalties and reduce interest charges.

Tax Loss Harvesting:

Got some investments that aren’t doing so great? Selling them at a loss before the year ends can balance out gains from other investments, which means less tax on your overall investment income.

  • Offsetting Capital Gains:When you sell an investment at a loss, the capital loss can be used to offset capital gains you’ve realized during the year. If you’ve made profits from other investments, using the losses to offset these gains can reduce the overall taxable amount of those gains.
  • Deducting Losses Against Income:If your capital losses exceed your capital gains, you can use up to $3,000 of the excess losses to offset other types of income, such as wages or salary. This reduces your taxable income for the year.
  • Carryforward of Losses:If your total net capital losses exceed the $3,000 limit for deducting against other income, you can carry forward the remaining losses into future tax years. These losses can be used in subsequent years to offset capital gains and reduce taxable income.
  • Resetting Cost Basis:By selling investments at a loss and then repurchasing similar assets (while being mindful of IRS "wash-sale" rules), you maintain your investment position while also resetting the cost basis. This can potentially minimize future capital gains taxes when you sell those assets later on.
  • Long-term Financial Planning:Tax loss harvesting can be part of a broader investment and tax strategy. By strategically realizing losses, you can optimize your portfolio, potentially improving its long-term performance while also managing your tax liabilities.

Consult a Tax Professional:

Sometimes, bringing in the experts is the best move. A tax pro can work magic with your numbers, find extra deductions you might’ve missed, and set you up with a personalized plan to squeeze every last bit of tax savings out there. Keep in mind, tax planning is something that should be done throughout the year, not just in December.

  • Strategic Planning:Tax professionals can develop a customized tax strategy aligned with your financial goals. Whether it's reducing taxable income, optimizing retirement contributions, or planning for major financial decisions, they can guide you through the process.
  • Compliance and Risk Mitigation:They ensure your tax filings are accurate, complete, and compliant with IRS regulations. This helps minimize the risk of audits, penalties, or errors that could cost you time and money.
  • Handling Complex Situations:If you have a complex financial situation, such as owning a business, multiple income sources, investments, or international tax considerations, tax professionals have the expertise to navigate these complexities.

As the year winds down and the holiday cheer fills the air, it’s time to give yourself the gift of financial savvy. By implementing these straightforward yet impactful year-end tax strategies, you're not just dotting your i’s and crossing your t’s for the IRS; you’re setting your business up for a more prosperous future.

Remember, these tax-smart moves aren’t just about crunching numbers; they’re about seizing opportunities to keep more of your hard-earned cash where it belongs – in your business. So, whether you're accelerating expenses, exploring tax credits, or strategizing retirement contributions, every step you take now paves the way for a more tax-efficient and financially sound tomorrow.

But hey, we get it – taxes can be about as thrilling as watching paint dry. That’s why we’re here to make this process as painless and rewarding as possible. Keep the momentum going beyond this year; stay informed, stay proactive, and don’t hesitate to seek advice from tax professionals who can sprinkle some extra magic on your tax game.

As you wrap up this year, pat yourself on the back for taking charge of your taxes like a boss. Here’s to a successful year-end and an even more prosperous year ahead. Cheers to smarter savings and a thriving business journey! ✨🚀



Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial advice. Consult with a qualified professional for personalized guidance tailored to your specific situation.