While the end of the year might seem far off, September is actually a great time for small business owners to start thinking about year-end tax planning. Beginning your tax preparation early can help you avoid the stress and disruption of an 11th hour rush, maximize your deductions, and ensure that your business is in the best possible financial position when the new year arrives.
Why start year-end tax planning now? Starting early offers several advantages:
Avoid Last-Minute Stress: Tax season is already stressful enough, but if you’re scrambling to gather documents and make financial decisions at the last minute, the problem is compounded. Start early and give yourself plenty of time to organize your financial records, review your income and expenses, and make any necessary adjustments before the year ends, when holidays and other things demand your attention.
Maximize Deductions: The sooner you start planning, the more opportunities you’ll have to take advantage of tax deductions and credits. Some deductions require actions to be taken before the end of the year, such as making charitable contributions, purchasing new equipment, or contributing to retirement plans. Starting early gives you time to make and execute better plans and optimize your tax savings.
Cash Flow Management: Tax planning isn’t just about reducing your tax liability; it’s also about managing your cash flow. By reviewing your financials in September, you can identify any potential cash flow issues and take steps to address them before they become a problem. This might involve adjusting your budget, delaying or accelerating expenses, or even renegotiating payment terms with vendors or clients.
Meet Deadlines with Ease: Certain tax obligations, such as estimated tax payments or payroll taxes, have specific deadlines that must be met to avoid penalties. Starting your tax planning early ensures that you don’t miss any important deadlines and helps you stay on top of your obligations.
Key Areas to Focus on During Year-End Tax Planning
When beginning your year-end tax planning in September, pay close attention to these to-do list items:
Review Financial Statements: The first step in any tax planning process is to review your financial statements. This includes your income statement, balance sheet, and cash flow statement. By analyzing these documents, you can get a clear picture of your business’s financial health and identify any areas that may need attention before the end of the year.
Assess Estimated Tax Payments: If your business is required to make estimated tax payments, September is an ideal time to review your payments to date and project your tax liability for the remainder of the year. If your income has significantly increased or decreased, you may need to adjust your estimated payments to avoid underpayment penalties.
Consider Capital Expenditures: If your business is planning to purchase new equipment or make other capital expenditures, it’s important to consider the timing of these purchases. Under Section 179 of the tax code, businesses can deduct the full cost of certain qualifying property in the year it is purchased, rather than depreciating it over time. By making these purchases before the end of the year, you can take advantage of this deduction and reduce your taxable income.
Plan for Retirement Contributions: Contributing to a retirement plan is a great way to save for the future while reducing your current tax liability. If you haven’t already maxed out your contributions for the year, now is the time to do so. This applies to both employer contributions and personal contributions to retirement accounts like 401(k)s or SEP (Simplified Employee Pension) IRAs.
Evaluate Inventory Levels: If your business holds inventory, consider conducting a physical inventory count and comparing it to your records. If you have excess or obsolete inventory, you may be able to write it off as a loss, reducing your taxable income for the year.
Charitable Contributions: Charitable donations are a great way to give back to the community while also benefiting from tax deductions. If your business plans to make charitable contributions, be sure to do so before the end of the year to take advantage of the deduction on your current year’s tax return.
Work with Our Tax Team: Tax laws are complex and constantly changing, which makes the do-it-yourself approach confounding and time-consuming. Our tax team is ready to help with your year-end planning and filing. We’ll help you navigate the latest tax regulations, identify savings opportunities, and ensure that you’re in full compliance. Working with us is an investment in you.
Now Is a Great Time to Start
Starting your year-end tax planning in September is a smart move for small business owners. By taking the time to review your financials, assess your tax liability, and make strategic decisions now, you can reduce your tax burden, manage your cash flow more effectively, and avoid the stress that often comes with last-minute tax preparation. Need help? That’s why we’re here. Call us (sooner, rather than later).