As we near the 4th quarter, small business owners and individuals should begin thinking ahead as the 2016 tax season is right around the corner.

Are aggressive year-end tax strategies right for you?

Do not spend money that you are not regularly spending just to reduce your tax bill.

$1 spent is a $1 deduction, not $1 saved.  Depending on your business structure and tax bracket, it would only lead to $.00 – $.60 worth of tax saved. Tax deductions are great for businesses to utilize, but you will never receive a full return on your money.

Do not over accelerate expenses into the current year.

If your business is lower in profit and you expect it to pick up next year, consider deferring as many expenses as possible into the following year.  For example, if you are in the 20% tax bracket this year but will be in the 30% tax bracket next year, waiting to expense $10,000 would certainly be more beneficial.  It means paying $3,000 in tax next year compared to $2,000 this year if you defer it.  It pays to carefully consider big expenses to offset your income as much as possible for the most tax savings.

Do you file your tax return on the accrual basis or the cash basis?

Accrual basis taxpayers report all income in the year earned and all expenses in the year incurred.  Cash basis taxpayers report all income when collected and all expenses when paid.  This will be a big factor when considering those big purchases, if planning and spacing them out would be most beneficial or not.

Everything you need for your tax preparer?

  • Year-end statements
  • W-2’s from employers, 1099’s from banks and other payers, 1095-A from the Marketplace for those claiming the premium tax credit
  • Did you make any big purchases for your business: furniture, vehicle, et cetera?
  • Expenses documented: utilities, vehicles, repairs, rent, insurance, licensing, et cetera?
  • New business? Determine your start-up costs, what business type are you: sole proprietorship, LLC, S corp or partnership?
  • Estimated tax payments

Plan ahead to stay ahead.  If you wait until the last minute, problems are bound to come up.  If you are properly prepared, you will still have time before the deadline to make adjustments, answer questions, and fix any concern.

Start your tax planning strategy now. At Pierce Firm, we’d love to help your business get ready now to maximize your tax return.