As the year winds down, it’s time to shift gears to year-end tax planning.
To ensure your business is in the best financial position possible, you will need to check all of the correct boxes. This takes careful planning and consideration, so getting a start now will help down the line.
In this article, I will walk you through the steps to take to be ready for year-end tax planning and what to look for in order to make the most out of your taxes and set your business up for financial success.
Start By Assessing Your Startup’s Financial Position and Tax Objectives
Before diving into the nitty-gritty of year-end tax planning, it is important to begin with a clear understanding of your financial position and tax objectives. Doing this work at the start will help lay the building blocks of your entire tax strategy.
Here is how the team at Pasquesi Partners recommends you get started:
1. Review Financial Records and Performance
Start by taking a look at your income statements, balance sheets, and cash flow statements to understand the overall financial health of your business. Pinpoint areas where you have done well, but also note areas that need improvement.
2. Set Goals on Where You Can Improve
Using the data you have collected from your financial review, set specific and measurable goals for your startup. For your goals, consider:
- Revenue growth
- Cost reduction
- Ways of increasing profitability
Taking the time to set clear objectives helps you prioritize proper tax strategies and allocate your resources more effectively.
3. Prioritize Tax Strategies Based on Your Financial Situation and Goals
With your goals in mind, make tax strategies that align with your objectives a priority.
For example, if one of your goals is to invest in growth, take a look at tax incentives for capital investments. If your goal is to reduce taxable income, focus on deductions and credits that can help you achieve this.
Knowing what your goals are and finding tax strategies that fit your goals will help your business immensely.
Get Your Financial Records in Order
Accurate and well-organized financial records are a must when planning your year-end taxes. As you look through your financial records and check that they are accurate and up-to-date, correct any discrepancies or errors that you see. While you are at it, take the time to organize your documents if needed so that any information you may need when preparing your taxes is easy to access.
If you do not already have efficient record-keeping practices for your tax-related documents, now would be a great time to start implementing these practices. Keep invoices, receipts, expense reports, and any other financial documents that are relevant to your business.
Accounting software or cloud-based tools can be a practical solution if this is an area your business struggles with.
Review Potential Deductions and Credits for Startups
Within your industry, research deductions and tax credits that apply to you. Common deductions for startups include:
- Business expenses
- Small business healthcare tax credits
- Research and development credits
As time passes, tax laws and regulations will most likely change. Keep an eye out for any tax law changes that could impact your deductions and credits.
Manage Your Expenses and Make Year-End Purchases
Managing your expenses and timing your purchases strategically has a large impact on your tax liability at the end of the year. Here’s how to make the most out of it:
- Review business expenses and identify opportunities for cost reduction
- Examine your business expenses and identify areas where you can reduce costs without compromising the quality of your products or services. This is an effective way to get higher profits while lowering your taxable income.
- Time expenses to maximize deductions in the current tax year
- Prepay certain expenses or defer income to the following year to maximize your deductions in the current tax year. Discuss these strategies with your accountant to ensure you are in compliance with tax regulations.
- Making purchases now can help lower your tax bill
- Consider making purchases for equipment, technology, or other assets at year-end. This can help lower your tax bill through deductions like Section 179 and bonus depreciation.
Review Employee Compensation
Employee compensation packages should be competitive and aligned with the financial goals of your business. Ensure that you are in compliance with payroll tax obligations to avoid any penalties or legal issues.
Furthermore, be sure you are accurately withholding and remitting payroll taxes, including:
- Income tax
- Social Security
- Medicare
Reach out to Pasquesi Partners for Help with Year-End Tax Planning
Year-end tax planning is not meant to be a year-end task. It’s complex and time-consuming but by working closely with an accountant, you can make the most of your year-end taxes and be confident that you haven’t left any money on the table.
Pasquesi Partners has years of experience helping businesses like yours check all of the right boxes to optimize their year-end taxes. Let us help you optimize your tax strategy, reduce your tax liability, and set your business on a path to continued financial success.
Contact us today to discuss how we can help you!