Year-End Tax Planning for Your Business

A business owner calculates how much her last minute planning helped lower her tax bill.

December is your last chance to make decisions for this year's tax return. These year-end tax planning strategies may help to lower your upcoming bill.

The end of the year is arguably the most important time for business tax planning. The cutoff on Jan. 1 means this period will be your last chance to make decisions that will affect this year's return.

As you head into this critical stretch, consider the following year-end tax planning strategies that can help you prepare and minimize your upcoming bill.

Deferring Income

Whether revenue will count toward this year's tax return or next year's depends on when it was earned. If you'd like to pay less in taxes for your upcoming return, you could defer income so it's counted in January.

Your method for deferring income will depend on your organization's accounting system for recognizing revenue, which was selected when the business was established. If you use the cash system, which considers income earned when you receive payment, you could delay sending out some invoices until after the New Year. If you use an accrual system, which recognizes revenue after you complete a job for a client, you could delay some shipments or wait to finish off projects until January.

On the other hand, if you have a lot of unused deductions for the year, it may make sense to accelerate income so you can put those deductions to good use. In this case, you would do the opposite — either send out invoices early or move to complete shipments and projects before the end of the year.

Investing in Equipment

Consider deducting the entire purchase price of certain tools and appliances from your taxes using the section 179 deduction, as detailed by the IRS. You can use this deduction to purchase equipment, tools, vehicles and technology for your business.

Under the new tax reform bill, you can deduct up to $1 million per year to account for qualified purchases of property for your business, per the IRS. If you haven't reached this limit yet and have more investments in mind, consider pursuing them before the end of the year.

Energy Tax Credits

There are also several energy tax credits available each year. These include tax credits for buying energy-efficient vehicles, the 179D deduction for building energy-efficient upgrades, the solar panel investment credit and rebates for energy-efficient appliances.

Making these changes before the end of the year could drastically improve your tax situation, and the upgrades would also be positive contributions to the state of the environment.

Contributing to Retirement Plans

If you offer a workplace retirement plan like a 401(k), Dec. 31 is the final date for you and your employees to make contributions for the year. Make sure everyone is aware of this deadline so that they can make any final retirement investments before the new year. If you want to reduce your own personal tax bill, adding money to your 401(k) fund is a simple way to earn another deduction while developing your nest egg. In 2018, you and your employees can contribute up to $18,500 per year if you are younger than 50, and $24,500 if you are 50 or older.

Meeting with Your Tax Planner

As you prepare for the end of the year, you may want to consider meeting with your tax advisor. You should go over your bookkeeping to ensure that all of your profit and loss figures have been recorded and updated. Once this is sorted out, you can more accurately estimate how much you'll owe in taxes and whether you'll receive a refund. Your tax advisor may also be able to suggest other year-end strategies for lowering your taxes and point you toward deduction opportunities you might not have considered.

As you move toward December, consider pursuing these year-end tax planning moves so you can celebrate the holidays with the knowledge that your business will be in excellent shape for the upcoming tax season.