Thursday, December 24, 2015

Year End Tax Moves to Reduce Business Profits

Here are some tax planning strategies to help you reduce profits for the year and thus reduce the taxes you will pay you. (Keep in mind if you want to accelerate profit into this year do the opposite of the strategies listed below)

Delay Revenue

If your business is an accrual basis tax reporting business delay sending out invoices until next year. For a cash basis tax reporting business delay receipt of income. You may need to call people you have already invoiced to request that they make sure you don't receive their payment before the year end. In reality they can send you a payment before year end and you could receive it after year end so this could benefit both you and your clients/customers.

Accelerate Expenses

On the Expense side for an accrual basis tax reporting business make sure you enter all the bills you receive before year-end and make sure they are dated this year. For a cash basis tax reporting business pay as many bills by year-end as possible. If cash is tight mail out checks the last day of the year giving yourself a few days into January to cover the checks. Even better put as much as you can on a business credit card and even though you won't pay the bill until later a cash basis tax reporting business can deduct the expense the date it is charged (assuming it is a legitimate business expense). Charging expenses on a business credit card before year end also works for an accrual basis tax reporting business.

Acquire and Put in Service Capital Assets that Can Be Section 179 Deductions

Any Capital Assets that you acquire and put in service before year can likely (assuming the right conditions) be fully deducted as a Section 179 depreciation deduction this year. Be careful when it comes to list assets that are the type you use in your daily non business life. With these listed assets you will only be able to deduct the percentage of the cost that is attributed to business use versus personal use. 

There may be other strategies too depending on the type of business and situation you have. Keep in mind that these strategies are in reality a shifting of profits and taxes between years. Employing profit reduction strategies for this year will typically mean increasing profits in future years, so plan accordingly. Even though you are shifting profits between years you can delay taxes and perhaps lower taxes depending on the circumstances for you in the different years involved. 

As mentioned above you can also move profit into this year especially if it looks like your income next year could move you into a higher tax bracket or trigger the Alternative Minimum Income TaxThe Additional Medicare Tax and or the Net Investment Income Tax

These tax strategies can be complex and I would be happy discuss your situation with you and become your CPA and work with you on an ongoing basis.  Feel free to contact me using my information below.

Jeff Haywood, CPA
The CPA Superhero

The above information is general information and is not all inclusive and as always in your tax situation everything "depends on facts and circumstances." So call me to talk about your specific facts and circumstances.