A Tax Planning Tip for the Small Business Owners

Year-end is approaching and now’s a great time to take a few fine-tuning steps to improve your tax situation. But be careful – many end-of-year tax planning “tips” really amount to giving away your profits for no benefit to you other than the reduction in tax. And that’s…well…dumb.

Any tax strategy should also make sense from a business standpoint. If it doesn’t make business sense, then it doesn’t make “cents” at all. So here’s one to consider if your business is showing a profit as you approach the end of the year.

Note that any profits will be taxed, either at the business level, or preferably at the business owner’s personal level. And even though taxes are paid at the end of the year, the next year’s expenses will still have to be paid as well. So there’s the opportunity – pay some of next year’s expenses now. If you’re on a cash basis, these expenses will qualify as tax deductible and can “reduce” the profits in this tax year instead of waiting until the next year.

Keep in mind that this will also remove those expenses from next year so you may be looking for replacement expenses next year (robbing Peter to pay Paul so to speak). But if you’re anticipating this will be a more favorable year then it will make sense to pull those expenses forward.

And the effect is that you’ve paid expenses early, reduced profits in this tax year and reduced your tax liability. But you’ll get the money “back” when you don’t have to pay the expenses you already covered. So the first month of the year will have fewer expenses than normal and you’ll not have to expend the cash at that point.

There are lots of other options depending on your specific circumstances so if you’ve got end-of-year questions, now’s the time to give us a call to schedule your free consultation. Call (480) 888-7111 or submit a web request here.