Even though it is the end of the year, you still have time to make some last-minute changes to decrease your tax burden, especially if you own your own business. Costs are a money-saver when it comes to taxes, and the end of the year is a great time to tack on some additional cost, especially if you are going to spend that money next year regardless. Consider pre-paying some expected or regular expenses for next year as part of your year-end plan.
A few additional quick movements can help you decrease taxes and lower your chances of an audit.
Tips for Your Year-End Bonus
Many employees get a bonus at the end of the year. Bonuses are taxed, but the rate is slightly different in some situations. Either way, these bonuses will likely increase your tax obligations. However, if you save your bonus wisely, then it may not harm you at tax time. One of the best places for your year-end gift is in a tax-deductible retirement account. That way, you not only beef up your retirement account, you also get an additional tax deduction. You could also put your bonus in your health savings account to have a similar effect.
For businesses, giving out a year-end bonus may be a good way to tack on costs to decrease your overall income for the year. It is a good way to boost employee morale while also lowering your end-of-the-year tax burden.
Loans from Your Corporation
If you have already incorporated your business for the liability protection benefits, you should be aware that there may be additional tax benefits as well. For example, when you make a loan to yourself from the corporation, that is money that you, as an individual, can use without worrying about paying income tax on it (because it is not considered income). The business also includes this type of loan as an expense, which cuts down on its taxes as well.
A loan from your business can be a great way for you and your business to save money at tax time.
This kind of quick arrangement can be a good way to cut down on taxes for this year, but as the loan is repaid, those repayments are considered income in the future. This is important to keep in mind for the following years. Be sure to make the transaction official by using loan documents that lay out the terms of the loan, including the applicable interest rate.
Consider Filing an Extension to Avoid an Audit
Audits can be time-consuming, frustrating, and even frightening. You can lessen your chances of being audited by filing an extension for your corporation. This is, in part, because the IRS determines their auditing methods for the year when the first rounds of filings are made. They simply do not audit as many businesses once the first deadline has passed.
If you are concerned about being audited, filing for an extension will not only give you more time to ensure that you have gathered all of the information needed but will also decrease the probability that you will be audited.
Don’t throw your money away–determine bad or uncollectible debts at the end of the year and write them off!
Deduct Bad Debts
The end of the year is a good time to take a hard look at whether your clients are actually going to be able to pay you. If your business extends credit to its customers, then you may be able to deduct for uncollectible amounts or “bad” debt. However, companies that use the cash method of accounting will not be able to use this “deduction” because sales are not recorded until you receive payment.
Other tips and tricks for the end of the year and beyond are available through our online video library. Sign up for a free membership.