It’s the most wonderful time of the year. But, for small business owners, it can also be an overwhelming time. There are last minute deals to close, year-end bonuses to hand out, and holiday parties to plan. Amidst all of this excitement, it can be easy to lose track of the more mundane administrative tasks your business needs to handle. However, despite your busy schedule, there is one vital year-end task that shouldn’t be overlooked: tax planning.
Dedicating time to consult with your tax advisor before January 1st rolls around can alleviate any concerns you may have and put your business in position for a strong start to the New Year.
Check out these top five tax planning tips for year-end that should help you wrap up the year smoothly.
1. The First Step in Tax Planning is Knowing Your Filing Dates
Getting acquainted with the deadlines and filing dates for small business tax returns is the first and foremost task on your tax planning list. While extensions are available, they come at a cost and can set your business momentum back. Below are some important general dates for tax filing to make note of, but be sure to check with your accountant or tax advisor to find out more specifics.
- Sole Proprietorship and Single-member LLC returns on Schedule C: April 17, 2018
- Partnership returns on Form 1065 with Schedule K-1s: March 15, 2018
- S corporation returns on Form 1120 S: March 15, 2018
- C corporation returns on Form 1120: for December 31 year-end corporations, the deadline is April 17, 2018.
Extension Deadlines for 2017 Business Tax Returns
- Schedule C for sole proprietors and single-member LLC’s: extension untilOctober 15, 2018 filed with personal tax return
- Partnership extension deadline is September 17, 2018
- S corporation extension deadline is September 17, 2018
- Corporation extension deadline is October 15, 2016
- C Corporation Tax Returns: Effective with the 2016 tax year (filing in 2017), there are new deadlines for filing corporate tax returns on Form 1120, depending on the corporation’s fiscal (tax) year
2. Keep Up-to-Date on Tax Law Changes
Staying apprised of any significant changes in tax laws, including proposed changes that may impact a small business is critical to the tax planning success. It doesn’t hurt to remain in the loop by browsing news headlines or setting Google alerts for related topics and updates. Thankfully, you can rely on your accountant or tax advisor to monitor and keep track of all of the tax law modifications.
3. Consider Implementing or Contributing to a 401k
One way to increase tax savings for small businesses is to implement a retirement plan. Arranging this not only provides a valuable benefit to employees but also delivers benefits to the business owner. The government allows for tax breaks for those businesses that are willing to support the concept of saving hard-earned money for the future.
Deductions based on retirement plan contributions depend on your business structure and the retirement plan you choose for yourself (or your employees),
For example, the following applies to small business owners who have no other employees (other than a spouse or business partner) and elect a Self-Employed 401k:
In this case, such a plan recognizes that a small business owner can be both employer and employee. Thus, an owner can deduct their contributions to their 401k from their personal income for an additional tax break. Ensure you are consulting with your tax advisor to carefully consider your own payroll level during this process. Furthermore, businesses that elect to sponsor SIMPLE IRA plans for their employees can receive a tax credit. According to IRS guidelines, businesses with “fewer than 100 employees, but at least one beyond the owner, qualify for up to a $500 tax credit to offset the administrative costs of the plan for each of the first three years of the plan – providing a cumulative savings of $1,500 to each business.”
4. Defer Income and Accelerate Deductions (Maybe)
While this can often feel like a tricky decision, careful planning can make deferring income or accelerating deductions a worthwhile choice for small businesses.
Put simply, deferring incomes means to put off income into the next tax year. This is done by delaying billing until late December, or postponing salary or capital gains until January, so that the income isn’t declared until the following tax year.
On the other hand, accelerating deductions means electing to pay January bills before the end of December so that your business can take recognize those expenses during the current year. Lastly, some small businesses choose to lower their tax burden by contributing to a charity.
In order to avoid being slapped with a bigger tax bill next year, each of these steps take consideration based on a number of factors unique to your business, including tax bracket. So, ask your accountant if it makes sense to defer income or accelerate deductions.
5. Make Purchases
In order to maximize deductions, your business may want to take a look at inventory and anticipate needs in advance of the New Year. Perhaps your technology or equipment is due for an upgrade, large quantities of supplies are in order, or your business requires a new vehicle.
Prioritize these items and decide if it might make sense to purchase them this year so that you can take the deduction for your current tax year. As with any large purchase, avoid spending the money just to reduce your tax bill. Ensure these purchases are necessary to your everyday business management and will enhance your productivity.
Be Proactive Not Reactive
At the end of the day, tax planning falls into the category of strategic business planning. Remember that prevention is often the best cure, so being proactive may cost you a little extra time and money now, but it will save you a lot more later. When it comes to taxes, this level of planning and organization will allow for a much more efficient and less stressful start to the coming year. Still have questions about small business taxes? View our article on 10 things about small business taxes you need to know right now.