Year end tax planning is a simple thing you can do that has huge benefits when tax season arrives. But don’t wait until March of next year to think about your taxes. That’s the filing and payment deadline. It’s too late at that point to do anything to change your taxes, because basically the tax strategy deadline is the end of the year.
Luckily the year is not over, but it’s coming to a close soon. There are tons of tax saving strategies you can still implement before the year ends that could affect the entire years’ worth of taxes for you. A year end tax planning session with your accountant is one of the best things you can do for your tax situation.
- More tax savings because you have time to implement any strategies your accountant suggests.
- Less stress during tax season because you’ll have an estimate of what you owe. No surprises.
- Faster tax filing turnaround is often possible because your accountant has already had a preview of your tax situation and started putting together all the info they have.
Like I said, there are a lot of strategies out there that may or may not work for your situation. I’ll go over just a few of them here, but we have a list available for you to download at the end.
All Income Levels
Let’s start with some tax strategies you can do regardless of your income level. Low hanging fruit if you will.
Entity
Do you have the right entity structure? That is something you can change before the end of the year. Do you need to be an S corporation? Do you need to add something else in? Are you a single member LLC? Is that the right strategy? Do you have a partnership? Do you need to look at adding something into the partnership tax structure? You have until the year ends to figure it out and fix anything about your structure to improve your tax savings.
Corporate Rent
Another strategy that we love, we call Corporate Rent. Also known as the Augusta Rule. It’s a strategy where your business will rent your house from you. It creates a tax deduction which lowers your taxable income. It’s a great strategy.
For the details on how the strategy works, search our blog posts or even Google search Corporate Rent and you’ll find what you need to start using it right away.
Health Insurance
If you have a business, do you have health insurance things? Maybe look at setting up a Self-Employed Medical Reimbursement Plan.
Higher Income Levels
If you have some extra cash available, some of these strategies may be worth it.
Paying Kids
If you have some extra cash, paying your kids could be a great tax strategy. This one gets overlooked a lot. We have blogs with more details on this strategy as well.
Buying Assets
Are you planning on buying assets between now and March of next year? Maybe buy that equipment now. The bonus depreciation laws often change. Supposedly they’re going to change at the end of this year, so we can’t guarantee that the way they’re currently used will continue to work on your taxes moving forward. So, buying equipment now before the year ends makes sense.
However, I do not recommend buying an asset for the sake of saving taxes only. Sometimes I’ll get a client come to me and be like, hey, should I buy a boat? And my answer is, I don’t know, should you buy a boat? If buying a boat makes sense for you and the lifestyle you want, great. Let’s look at your business and see if having a boat as an asset makes sense. Sometimes it might, but other times, just buying a boat for the sake of it isn’t a great use of your cash.
R&D Credits
Depending on what you have going on R&D (research and development) credits might be an option for you.
Donations
If you have stock that’s appreciated in value, donating that to charities, if you’re doing that anyways, can help reduce capital gains that you wouldn’t need to pay. Plus, you get the charitable contribution.
Year End Deadline – Don’t Wait
Once December 31st has passed, that year is locked in. There are a few exceptions depending on retirement plans that you have set up or can get set up. (That’s the best thing about taxes, there’s always an exception.)
But when the year ends, for the most part it’s blocked in, and I wouldn’t wait until December 31st to do some of these things. Like if you need an entity switch. In years past, the IRS has shut their desire, (I mean, they never have the desire to help you. They just want your money.) but they’ve locked down their EIN system so that you can’t get a new EIN, which is related to your entity, in the last couple weeks of the month. So don’t delay.
Take This to Your Accountant
We have a list of 28 specific tax strategies that’s the exact same list all of our professionals go through when doing a year end tax planning session with their client. Whether you use us or another accounting firm, download the list and take it to your accounting professional. Have them look it over to make sure you are maximizing your tax saving potential.
A word of caution when it comes to making tax strategy decisions. Yes, you want to lower your taxes, but more important is growing your wealth. As an accounting firm, we’re not just looking at lowering your taxes. What are your other plans to try and increase your financial wealth? Let’s play with the taxes to make sure that they compliment what you’re trying to do.
If you’re ready to talk to an accountant now, go ahead and schedule a call for a year end tax planning session so we can start saving you money right away.
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