Too Early For Year End Tax Planning?
As the saying goes, those who fail to plan, plan to fail. But as summer winds to an end, school starts up and football games kick off, year end tax planning may still seem off in the distance. But it may not be too early to start thinking about choices you can make in the last quarter of the year to reduce the year’s tax burden.
Making a forecast of the year’s income and expenses is the first thing to consider. This helps in a number of ways. You’ll be better able to estimate your tax bracket. If you are doing this for a business that pays its own taxes (like a closely held C corporation) then you know the profitability, and thus tax burden for the business. If the business is a “pass-through” entity you will be better able to project your personal taxes. The earlier this is done for the year the better. Doing so allows you to make adjustments so that you can minimize taxes. You might want to accelerate expenses for the current year or maybe, when possible, defer income into the next year.
Record keeping is another key. The better your records the more likely it is you will pass an audit. While there are no guarantees in the audit process, having meticulous records is one way to blunt possible audit adjustments. You will need a record ofall transactions – this could be bank or credit card statements the transaction was listed on or the actual receipt. This is critical for meals and entertainment, business travel and auto expenses. This is especially important for small business owners who use their personal automobile for business purposes. For each transaction, you’ll need the date, amount and some description of the transaction.
Tax credits can be another way to save taxes. By looking for ways to utilize these credits you save taxes on a dollar for dollar basis. That is, every dollar spent that qualifies for a tax credit reduces your taxes by the same dollar amount. This is much more effective than tax deductions (which only reduce taxes by a percentage – based on the effective tax rate). But tax credits have a catch, in that they are very narrow and only apply when certain requirements are met. By thinking about these before year-end, you have the opportunity to jump through all the hoops necessary. It can’t be done after the fact.
If you want to get an early jump on minimizing your current year tax burden then schedule your free consultation by calling (480) 888-7111 or submit a web request here.