Business owners should take advantage of the end of the tax year to proactively manage their taxes. Strategically coordinating income and expenses, deferring and accelerating deductions, and using retirement accounts can all help lower tax liabilities and help maximize tax savings. An experienced tax advisor can assist in developing and implementing effective strategies, as well as provide advice that ensures your filings and payments are timely and accurate.
1. Evaluate Your Business’s Tax Status
Different factors influence the nature and amount of taxes a business must pay, including company structure, entity type, tax-deductible expenses/credits, etc. Deductions can significantly lower taxable income and overall tax liabilities, thus lowering compliance risk and mitigating liability for taxes due. Accurate accounting of expenses is key to claiming eligible deductions.
Tax credits reduce tax liabilities by providing dollar-for-dollar savings, and taking advantage of available tax incentives is key to staying compliant with continually shifting regulations while maximizing profitability for shareholders.
2. Review Your Current Accounting Method
By using the cash method of accounting, income and expenses are recognized in real time, allowing you to effectively manage taxable income by deferring or accelerating income in your business. For instance, invoicing clients before the new year begins can help defer income, while prepaying business insurance premiums or supplies can accelerate expenses and thus effectively manage taxable income.
An efficient bookkeeping team and accounting software can assist in tracking these items to ensure accurate tax compliance, maximize savings via deductions and credits, simplify reporting processes, and protect from unexpected audit penalties. Keeping accurate expense and invoicing records also aids this effort and protects from penalties should an unexpected audit arise.
3. Review Your Accounts
Before consulting a tax pro, ensure you have all necessary documents. These should include copies of all year-to-date income and expense statements, bank account records, credit card statements, mortgages, investment accounts, etc.
Review your paycheck withholding to ensure that it is appropriate. Use the IRS Tax Withholding Estimator and file a new W-4 with your employer, then consider itemizing or “bunching” expenses in order to gain maximum tax benefit.
4. Review Your Business’s Deductible Expenses
There are various expenses you can write off to reduce the tax liability for your business, and one way of doing this is keeping personal and business expenses separate to reduce miscoding or missing any deductible expense. One strategy could be opening a dedicated business bank account and credit card that tracks all business-related expenditures.
Other expenses you can deduct from taxes include membership dues or subscription costs to industry publications, shipping costs and rental space expenses for your business, shipping expenses and costs associated with renting space incurred for renting space needed by your business, shipping expenses related to rent agreements, etc. It’s best practice to log expenses throughout the year to make sure you claim every possible tax deduction come tax time!
5. Review Your Business’s Income
Keeping a comprehensive record of all of your business’s income is an integral component of tax planning, from employee wages and tips to sales revenue from rentals or sales. By having this data at hand, filing taxes more efficiently becomes much more efficient—and provides proof of income should any audit occur—saving both time and money!
6. Review Your Business’s Taxable Income
Maintaining accurate records of gross receipts is one of the key components of tax preparation. Such records might include cash register tapes, records of cash and credit sales transactions, receipt books, invoices, and 1099-MISC forms.
If you use the accrual method of accounting, consider accelerating certain expenses due before year-end to reduce taxable income this year (rather than waiting until next year). For instance, purchasing equipment that can be depreciated over several years at once is often more advantageous to an accrual taxpayer than waiting to purchase it in January 2025.
7. Review Your Business’s Taxable Assets
Tax liability management is integral to your business’s financial well-being. Planning out income and expenses correctly, bundling deductions, and taking advantage of tax credits can all help minimize tax bills while optimizing financial health.
Tax planning requires ongoing collaboration between you and your accountant in order to proactively manage your tax situation. To do this effectively, documentation of all money entering and leaving your business must exist—this may include cash register tapes, records of cash and credit sales transactions, receipt books, or invoices.
8. Review Your Business’s Taxable Liabilities
Business owners face various taxes that apply to them as business owners, including income and capital gains tax on profits and payroll tax if you employ people. Accurate records and an understanding of tax rates and brackets will help minimize your taxable liability and minimize business tax liabilities.
Maximizing deductions and credits can significantly lower your company’s taxable income. Working closely with a CPA or enrolled agent to adjust strategies based on financial performance can help optimize your position, potentially saving substantial taxes. A proactive approach also can identify opportunities for strategic income management, such as matching revenue recognition with expenses or deferring income to reduce tax bills.
9. Review Your Business’s Taxable Income
Tax planning strategies you can employ to help lower the taxable income of your business include deferring income, increasing expenses, and taking advantage of deductions and credits—the latter directly lower your tax liability while deductions reduce its amount.
Separating personal and business finances (by opening a separate bank account or credit card specifically for business expenses) can yield substantial tax savings. Furthermore, optimizing retirement plan contributions as another effective way of lowering tax liabilities is another efficient strategy—all easily integrated into any overall financial plan.
