The most valuable tax planning happens before the year closes, not when you file in the spring. Once December 31 passes, most of your options for the year are gone. With a couple of months left, here are the moves worth reviewing now.
Time your income and expenses
If your business is on the cash basis, you have some control over which year your income and expenses land in. When you expect next year to look similar or lighter, you can defer income into January and pay deductible expenses before December 31, pulling those deductions into the current year. If next year looks like a higher-income year, you may want to do the reverse. The point is to be deliberate about timing rather than let it fall where it may.
Buy needed equipment before year-end
If a real purchase is on the horizon, the tax code is generous right now. 100% bonus depreciation is back and permanent, and Section 179 lets you expense up to $2,560,000 of qualifying equipment. In practice, most small businesses can fully deduct an equipment purchase in the year they make it, including used equipment that is new to your business.
One rule matters for timing: the equipment must be placed in service by December 31, not merely ordered or paid for. Buying it and leaving it in a box until January does not count for this year.
A word of caution: a deduction returns only a portion of what you spend. Buy equipment because the business needs it, not to chase a write-off.
Fund your retirement plan
Contributing to a plan such as a SEP-IRA or Solo 401(k) lowers your taxable income while building your own savings. Timing matters here: some plans, such as a 401(k) for a business with employees, must be in place by December 31 to count for this year, while others can be opened later. If retirement contributions are part of your plan, do not leave the setup until spring.
Check your numbers now
All of this works best when your books are current. Reconciled records let you estimate your tax bill while there is still time to act on it, rather than discovering a surprise in April. Keep in mind, too, that the fourth quarter estimated tax payment is due January 15, so this is a natural time to confirm you are on track.
Build your year-end plan
If you would like help mapping out the moves that fit your situation, weighing an equipment purchase, or setting up a retirement plan before year-end, we are glad to help. Contact Stone Accounting Services and we will build a plan while there is still time to use it.
This post is provided for general educational purposes and does not constitute specific tax advice. Every business is different, and we welcome the opportunity to discuss yours.
