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Year-End Tax Planning Now

Year-End Tax Planning Now

By BarbaraWeltman, Guest Blogger
Published: November 12, 2015 Updated: November 12, 2015

It’s that time again for owners to think about taxes. It may not be the most enjoyable endeavor of the year but it’s certainly one that will put money in your pocket. The sooner you get started, the more opportunities you’ll have and the less stressed you’ll be. Here are some basic planning ideas that you can use now to improve your tax picture for the year.

Meet with your tax advisor

Don’t wait another minute to schedule a meeting with your tax advisor. With the 2014 tax-filing season over, tax advisors are ready now to share year-end planning strategies with you. Some possible actions are described below. However, it’s up to you, and your advisor, to tailor the actions to your situation.

Actions for cash method businesses

Many small businesses, such as service-businesses, use the cash method of accounting. If you report your income and expenses using this method of accounting, you have some flexibility in timing income and deductions near the end of the year.

  • Defer income. Postponing the receipt of income until next year gains you more time for paying taxes on that income. For example, if you’re a web designer and complete a project late in December, don’t send an invoice until the end of the year or early in January so you’ll receive payment in 2016. Caution: Don’t defer income if you have immediate cash flow needs or concerns about the ability of the customer or client to pay.
  • Accelerate expenses. The same reasoning for deferring income applies to the payment of expenses, only in reverse: Pay what you can now so you can deduct it in 2015. This means clearing up outstanding bills and stocking up on supplies you expect to need in the coming year. If this time of the year is slow for you, consider taking any needed continuing education courses so you can write-off the cost this year. Caution: There’s a prepaid expense rule that limits what you can deduct now when prepaying multi­year costs, such as a three-year subscription.

Actions for accrual method businesses

If you report your income and expenses on the accrual method, there are special options for you to consider. Examples:

  • Declare year-end bonuses for employees. You can deduct them in 2015 as long as you actually pay them by March 15, 2016.  This year-end bonus rule does not apply to company owners.
  • Authorize charitable contributions. The board of directors can authorize charitable contributions, which are also deductible in 2015 as long as they’re paid by the March 15, 2016, deadline. This strategy only applies to C corporations,

Be mindful of basis

If you own an S corporation that had a bad year, the deduction for your share of   losses is limited to the extent you have basis in your stock and loans you’ve made to the business.  Consider ways to increase basis:

  • Make new loans to your corporation. Put the terms of the loans in writing and reflect them on the corporate books.
  • Restructure third-party loans that you’ve personally guaranteed. If agreeable, the lender can rework the loans so that you are jointly liable for the debt and not a mere guarantor.

You can take a one-hour webinar from the IRS about S corporation basis on November 18 at 2 pm ET (11 am PT) about S corporation basis. The program covers why basis is important, how to figure it, and what debt constitutes basis. Register and find details from the IRS.  

Settle up projected taxes

Review your tax payments to date and the year-end strategies you use or plan to use so you can adjust the final installment of estimated taxes for 2015. Try to get as close as you can to the amount of your 2015 tax bill so you don’t overpay or underpay. If you overpay, you won’t recoup your money until you file your 2015 return. If you underpay, you may owe a penalty. The deadline for the fourth installment of estimated taxes for 2015 is:

  • December 15, 2015, for C corporations reporting on a calendar year.
  • January 15, 2016, for owners reporting business income on their personal returns.

Conclusion

In doing your year-end tax planning, monitor what Congress is doing about the more than 50 tax breaks for individuals and businesses that expired at the end of 2014. Likely most, if not all of them, will be extended retroactively for 2015. You may only have a short time to act upon them, so stay alert.

About the Author:

BarbaraWeltman
Barbara Weltman

Guest Blogger

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BarbaraWeltman.