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Guide to Year-End Tax Tips for Small Business
These last-minute methods can help you trim your tax burden
Action Steps
The best contacts and resources to help you get it done
Delay income
As a rule, you want your customers and clients to pay up quickly. December is a different matter. If you can defer income to the first week of January, you push back the time when you have to pay taxes on that income to April of the following year. By delaying income for a few weeks, you can hold onto more of your money for a while.
I recommend:
Create invoices using templates from Microsoft and include a request to “Remit Payment After January 1.” The CCH Business Owners Toolkit offers a discussion of Business Income that can help you determine what is and what isn’t reportable income for tax purposes.
Write off inventory
Check inventory for damaged goods or items that have become obsolete. The loss of value can be used as added tax deductions.
I recommend:
Keep track of damaged or unsellable goods with these customizable inventory forms from Microsoft. Or go with a software solution, such as QuickBooks’ Enterprise version.
Contribute to a retirement plan
If you’ve put off starting or contributing to a retirement plan, now is the time to get it done. Any money you put into an IRA, 401k or other plan reduces your income for tax purposes. A word of caution: different retirement plans can have different contribution, reporting and filing requirements and deadlines. Check with your financial advisor and accountant to make sure you understand the rules.
I recommend:
If you don’t already have a plan, start one now. PAI offers a range of plans for small businesses. For simple, do-it-yourself retirement plans, check out 401(k) easy. See how to establish a SEP here. SmartMoney.com offers a review of the various types of small business retirement plans. For more information, see the IRS page on tax information for plan sponsors.
Help a worthy cause
Charitable contributions are deductible expenses, so get into the holiday spirit and make a donation on behalf of your company before the end of the year. It can not only help lower your taxes, it can make you feel better.
I recommend:
The simplest solution is to write a check before Dec. 31 to a charitable organization in your community. Some Web services can point you to charities and even allow you to contribute online. Try America’s Charities or Network for Good.
Tips & Tactics
Helpful advice for making the most of this Guide- Make sure any bills you decide to pay early qualify as business expenses and are not personal expenses
- When deciding whether to defer income, consider your present and projected future earnings. You don’t want to defer income from a year when your business has a loss into one where the business will turn a hefty profit.
- Individual tax situations vary. It’s a good idea to check with your accountant to make sure your last-minute tax moves will work to your benefit.
- As with any business action or transaction, be sure to keep good records.
