Always Have a Plan
As the end of the year approaches, you’ll have a sense for your tax liabilities and what you’ll be expected to pay next year. Work with your accountant or tax professional to make a plan for how you’ll pay taxes for this year. Use what you know to determine whether you’ll make quarterly payments or a lump sum. In some cases, quarterly payments are required by the IRS.
Understand Where Your Business Can Deduct
With the introduction of the Tax Cuts and Jobs Act, many businesses now have the opportunity to deduct as much as 20% of business income on their federal taxes. This usually applies only to pass-through businesses, or those where the owners themselves pay taxes on income from the business.
For C-corporations, income tax rates have dropped from 35% to 21%– which means moving from a pass-through business to a C-corp may be worth your while.
Make Retirement Savings Plans Work for You
Now is the time to assess your retirement savings plan and make as much payment as you can before the end of the year. Any payments you make will help reduce your income for the year. If you’re still dragging your feet about setting up your retirement account, there’s no time like the present. Talk to a financial expert right away.
Use Equipment Deductions for Major Savings
Equipment deductions can be a powerful way to reduce your tax liability for this year. You’re able to claim a deduction as high as $1 million if you’ve bought equipment for your organization (and used it) in this tax year. You can also claim deductions for depreciation at a rate of 100%, twice as much as what was available last year.
Holding or Rushing Revenue
You might find that your company was more profitable than expected for this year. If that’s the case, it might be wise to either defer revenue or increase expenses before the end of the year to decrease your liability. For example, you might consider holding off on billing clients and customers until the new year.
On the flipside, if you anticipate that 2019 will be a more financially successful year than 2018, consider getting as much of your cash in hand before the new year in order to reduce liability for 2019.
Embrace Charitable Giving
Charitable contributions, first and foremost, are an excellent way to increase your sense of personal pride and that of your company. But they can also be an excellent way to reduce tax liability at the end of the year. As the end of 2018 approaches, consider increasing your charitable giving levels in order to decrease your taxable income.
Use Your Reports to Set New Goals
Your end of year financial reports aren’t just a great way of looking back on your successes and failures in 2018. They should also be an empowering tool to help you set goals for your future. Work with your financial advisor to truly understand what your end of year reports mean for the future of your business. The more informed you can be, the more effective and profitable you can make your company’s 2019.
Spend Where You Need It
We don’t advocate going on a spending frenzy at your business just for the sake of reducing tax liability. But if there are purchases that your company genuinely needs, now is the time to make them. This might include inventory, equipment, office materials, or payments to suppliers. Whatever your potential needs might be, now is the time to fulfill them.