For small business owners, the end of the year is a busy, if not the most dynamic, time of year. You’re preparing for the start of a new year and trying to finish things up for the year ends. So, year-end tax planning should be on your mind aside from holiday shopping, parties, and gifts.

It’s a time of year again for year-end tax planning

The end of the year is a great time to finish up your accounting books and get ready to move your business forward. However, you may put your company behind schedule without careful end-of-year tax planning and make tax season even more nerve-racking than it already is.

Don’t know where to begin with your year-end tax planning? Don’t be concerned. Use the small business end-of-year tax checklist below to get the ball rolling before the new year.

Table of content – Year-End Tax Planning Checklist

  1. Don’t delay until the last minute
  2. Estimate your financial health
  3. Defer or accelerate income
  4. Confine tax deductions
  5. Consider your accounting process
  6. Confer a tax preparer

Don’t delay until the last minute – Every business owner has been guilty of procrastination at some point. “I’ll do it tomorrow,” quickly becomes “I’ll do it next week.” Then, suddenly, you’re sprinting to complete your tasks.

The final thing you want to do when year-end tax planning is procrastinating. So, as you prepare to begin the new year, don’t put off tax planning. When it comes time to file, the earlier you start, the better off you will be. To evade last-minute tax planning, set aside time in your plan each week at the end of the year to sit down and chip away at your tax planning duties.

Estimate your financial health – The end of the year is an excellent time to evaluate your company’s financial health. Examine your financial statements to see how well your company is doing:

  • Balance sheet
  • Income, or profit and loss, statement
  • Statement of cash flows
  • Retained earnings statement

Defer or accelerate income – Do you want to reduce your tax liability? Consider income deferral. Income received by December 31 is considered income for the current year. Therefore, you can reduce your current-year tax liability by deferring income until January 1.

Payments received after January 1 are not considered income until the following tax year, allowing you more span to pay taxes on business income. In addition, deferring income may be advantageous if you anticipate being in a lower tax bracket next year because you will pay less tax.

Your accounting method determines the method you use to defer income. You can wait for payment using cash-basis accounting by sending invoices later than usual. You can also set your invoice due dates for the following year rather than the current year. However, cash-basis accounting requires you to record income as soon as it is received. As a result, income received the following year will not appear on the current year’s tax return.

Confine tax deductions- Find which tax deductions you’re eligible for before closing your books at the end of the year. Understand the deductions that apply to your company and how to deduct them properly.

Among the most common small business tax deductions are:

  • Home office
  • Employee expenses
  • Business use of a car
  • Travel expenses
  • Charitable contributions

Each business expense has its way of being deducted. Before claiming a tax deduction, make sure you follow the IRS guidelines.

Keep proper accounting records to prove your deductions are for business expenses if you take advantage of a business tax deduction.

Consider your accounting process- Your recordkeeping process significantly impacts how quickly you file your taxes. The better organized and up-to-date your books are, the easier it will be to complete your business tax return. You can avoid mistakes, potentially receive a larger refund, and enjoy hassle-free tax filing if you have a solid accounting process.

Every business has its scene of accounting procedures. You can keep records in a variety of ways, including:

  • Manually keeping track of account information
  • Utilizing accounting software alongside an accountant
  • Hiring an accountant to manage your books

Perhaps you’ve discovered that your current method isn’t providing you with enough bang for your buck. Or maybe you’re looking for a mode to automate your bookkeeping, so you don’t have to do it all yourself. Whatever the case may be, the end of the fiscal year is an excellent time to evaluate your accounting process.

Confer a tax preparer-  Set up a meeting with your accountant or tax preparer before the end of the year to ensure you’re roaring and ready to go for the new year.

Small businesses can benefit significantly from the services of tax professionals. They can advise you on maximizing your tax refund and minimizing your liabilities. Not to mention, tax preparers can assist you in avoiding mistakes on your tax return, saving you headaches and financial problems in the future.

Speak with a tax professional to determine the type of records you’ll need and estimate your tax liability. Allow a bunch of time to meet with your tax preparer and discuss your taxes. Remember that tax professionals are also extremely busy at the end of the year.

Guidance for smooth small business year-end tax planning

Do you want your tax planning to go off this year? Keep the following suggestions in mind:

  • Be proactive
  • Don’t panic
  • Create a checklist (or use ours!)
  • Set reminders for yourself
  • Take things one step at a time 
  • Consult a tax professional with questions
  • Ask for help, if needed

Tax planning at the end of the year does not have to be a stressful process. If you plan and don’t hold over your tax planning tasks, you’ll make it through the dreaded year-end tax planning season.

Here are some questions to clear your doubts

Why should managers understand the fundamentals of tax planning?

An annual tax planning event reduces the amount you have to pay in taxes and lowers your tax obligations. Tax planning throughout the year can decrease the amount of taxes you owe, but it must be done consistently.

How can careful tax planning benefit you?

You can avoid or reduce tax penalties by adjusting your withholding and estimated tax payments in advance. Making adjustments may also allow you to postpone tax payments or shift some income or deductions to different tax years to lower your taxes.