Year End Tax Savings for Business Owners–Accelerate Expenses

In the last few weeks and months of the year it can be a very advantageous time to make moves that will lessen your tax liability for the year.

Did you know that if you are not actively paying quarterly estimated payments throughout the current year for this year’s taxes, then at tax time you will get hit not only for the tax, but also for penalties and interest. This could turn out to be a large amount if you’re not careful. Unfortunately, a negative side effect of a good financial year is a larger tax bill. Here are some last-minute moves that you can make to lower your taxes as a business owner.

Contribute to a SEP IRA or your current retirement plan. It’s too late to set up a SIMPLE IRA for this tax year, but you have until tax day of next year to set up and fund a SEP IRA with as much as 25% of your net earnings or $61,000, whichever is less. This is tax deductible. If you already have a retirement plan in place, then you can contribute to that as well. You can make contributions both as an employee and as the employer, depending on the plan, so consult with your financial advisor to see what your best options are.

Accelerate expenses. Are you paying rent for your business? Ask your landlord to pay for as many months of next year up front as you can and thus use the deductible expense for this tax year. Buy that new expensive piece of equipment that you’ve been needing (but only if you truly need it—don’t let the “tax tail” wag the dog). You can even finance an expensive piece of equipment with a business loan and deduct the full value of the equipment in this year and the business loan interest in future years (section 179 expense). Planning to attend a conference next year? Go ahead and buy your tickets, and your plane tickets. Using monthly subscriptions that allow annual payments? Accelerate them to annual and pay for the full year before December 31^st.

Collect incoming checks for the last couple weeks of the year and wait to deposit them until January 1^st. This is a super-simple, yet difficult chess move to play. Do you have the funds to last you a couple weeks?

These are just a few tax savings strategies that you can implement in order to lower your tax liability in one year and thus defer it to another year. This is a good strategy if you’ve had an exceptionally good year in your small business. In my case, I was single and expecting to perhaps get married in the next year which will drastically help my tax bracket, so I was seeking to take as many deductions as possible in the year when I already had a larger tax liability.

There is another tax benefit known as the “Augusta Rule” that you can also take advantage of and you can read more about it here.

Regardless of your tax situation, there is always something to be optimized for better returns and revenues in your business. It’s best to work with an advisor who can help you optimize your situation. Good luck with year-end savings and good luck in your business!