Tax planning is the part of accounting that happens while there is still time to change the result. After December 31 you can only report what happened. Before it, you can choose.
For specific fall dates, our guide to September and October tax deadlines is a useful companion.
1. Know where you stand now
- Get a current profit and loss through the latest month, reconciled. If your books are behind, see what to do when your books are months behind.
- Project taxable income for the full year.
- Compare estimated tax payments to the projected liability.
- Identify what is unusually high or low compared with last year.
2. Timing of income and expenses
Cash-method businesses can often influence which year income and expenses land in, for example by billing timing and paying expenses before year-end. Deferring income only helps if next year's tax rate is not higher, and accelerating expenses only helps if they are real business costs you would incur anyway. Do not buy things you do not need for a deduction.
3. Equipment and asset purchases
Equipment generally must be placed in service by December 31 to count for that year. Depreciation rules, including Section 179 expensing and bonus depreciation, have limits and phase-outs that have been changed by recent legislation, so confirm current figures for the year you buy. Buying only to save tax is rarely wise.
4. Retirement plans
- Setting up a plan and making employee deferrals can have year-end deadlines that differ from tax-filing deadlines.
- Some employer contributions, such as to a SEP IRA, can be made up to the filing deadline including extensions.
- Contribution limits adjust annually, so confirm the current year's limits.
- S corporation owners need W-2 wages to support many contribution types.
5. Owner pay and entity checks
- S corporation owners: review whether salary is reasonable. See S-corp reasonable salary.
- Confirm owner basis before taking large distributions or claiming losses.
- Consider whether an entity change makes sense for next year. See LLC taxed as S corp.
- Include health insurance for more-than-2% S corporation shareholders in W-2 wages as required.
6. Payroll and information returns
- Confirm payroll tax deposits are current.
- Collect W-9s from contractors and verify addresses.
- Prepare for Forms W-2 and 1099-NEC, generally due to recipients by January 31.
- Check reporting thresholds for the year, which have changed in recent legislation.
7. Estimated taxes
The final installment is generally due January 15. Compare payments to safe-harbor targets before then. See quarterly estimated taxes for LLC owners.
8. Clean up the books
Reconcile all accounts, clear uncategorized items, and review receivables and payables. Clean books let your preparer file quickly and accurately. See how to fix messy QuickBooks records before tax season.
Tax limits and deadlines change, and several provisions have been amended by recent legislation. Treat this as a checklist of topics to discuss, and confirm current figures before acting.
Our tax planning service reviews these items with your actual numbers. To plan before year-end, schedule a business tax planning consultation. Savings are never guaranteed.
