As the year comes to a close, it's crucial to evaluate your tax strategy. Proactive planning before December 31 can help minimize taxes, enhance cash flow, and position your business for success in the new year. Whether you're a sole proprietor or leading a growing team, these seven questions can help you uncover tax-saving opportunities.
1. Have You Accounted for All Business Expenses?
Small expenses can lead to substantial deductions, but only if they are tracked correctly. It's easy to misplace receipts or overlook small purchases, especially if you occasionally mix personal and business transactions. Now is the time to collect all receipts, reconcile credit card statements, and ensure nothing has been missed. Remember to account for recurring charges like software subscriptions, meals, and professional memberships. If you work from home, a portion of your utilities or rent could be deductible. A thorough review ensures every legitimate expense is claimed when it matters most.
2. Should Big Purchases Happen Before Year-End?
Considering new equipment, a company vehicle, or technology upgrades? Timing can significantly impact your taxes. Under Section 179 and bonus depreciation, businesses can deduct full or partial costs of qualifying purchases in the current year rather than deferring them. Purchasing by December 31 could fast-track these benefits to this year's return. However, avoid unnecessary spending just for tax deductions. Evaluate whether the purchase supports your long-term goals and operations.
3. Are Your Retirement Contributions Maximized?
Retirement plans are vital tax-saving tools for business owners. Contributions to SEP IRAs, SIMPLE IRAs, or 401(k)s lower taxable income while securing your future. If you haven't reviewed your options recently, now's the time. Increasing contributions can reduce current tax liability while setting a solid foundation for financial security. Even small businesses and sole proprietors can reap significant benefits from these plans.
4. Is Your Payroll and Compensation Structure Optimized?
Year-end is an ideal time to review compensation for yourself and your team. For S-Corporations, ensure your salary meets IRS guidelines. For sole proprietors, review withdrawals and estimated tax payments to avoid surprises in the new year. Adjustments can balance cash flow and improve financial predictability. Ensure benefits, withholdings, and bonuses are accurately reported before issuing W-2s and 1099s in January.
5. Are You Overlooking Tax Credits?
Tax credits are often more valuable than deductions because they reduce your tax bill directly. Depending on your industry's activities, you might qualify for credits like the R&D credit or energy-efficiency credits. These programs frequently change, so consult your accountant to see if you qualify. Even a small credit can meaningfully impact your balance due.
6. Do Your Estimated Tax Payments Need Adjusting?
Surprises at tax time are never pleasant. If business income fluctuated this year, adjusting estimated payments can help avoid penalties. Examine your year's income and expenses compared to projections. If you've had a strong quarter, consider increasing your final payment. Conversely, a drop in revenue might justify a decrease. Being proactive helps ensure smooth cash flow and financial predictability.
7. What's Your Tax Outlook for Next Year?
While year-end planning wraps up the current year, it's also a chance to look forward. Decisions made now can influence your financial standing for years. Consider how future hiring, expansions, or equipment needs may affect your 2026 tax position. Engaging with an accountant can help map strategies balancing short-term and long-term growth goals.
Wrapping Up: Plan Now, Benefit Later. Successful business owners plan ahead, ensuring they benefit fully from available credits and deductions. A thorough year-end review can unveil hidden savings and guide smart decision-making. To discuss your tax strategy, reach out to your advisor or consult our office before year-end. A touch of preparation today can yield substantial savings tomorrow, setting your business up for a prosperous start in the coming year.
