Top Small Business Year-End Tax Planning Strategies

Tax Planning Strategies
Table of Contents

Being a small business owner these days has many challenges, but with the end-of-year tax planning, we need to stay vigilant about our strategies. 

Are you a small business owner who is looking to reduce your taxable income for this year? If so, you’re in luck.

In this blog post, we will discuss several tax planning strategies that will help you do that. By implementing some of these strategies before the end of the year, you can save money on your taxes.

Read on to learn more in this tax planning guide!

Invest In Your Business

One way to save on taxes is to invest in your business. This can include buying new equipment, hiring additional staff, or renovating your premises. Not only will this help to improve your bottom line, but it can also provide a valuable tax deduction.

Another way to reduce your tax bill is to make sure that you are taking advantage of all of the available deductions. For example, if you have a home office, you may be able to deduct a portion of your rent or mortgage interest.

Finally, if you are expecting to owe taxes, you should consider making an estimated tax payment before the end of the year. By taking these steps, you can minimize your tax liability and put more money back into your business.

Write-Off Bad Debts

If your small business is owed money by clients that you don’t believe you’ll ever collect, you may be able to take a write-off for those bad debts come tax time.

Before taking this step, make sure that the debt meets the criteria for a write-off. The debt must be considered worthless, meaning there’s no chance you’ll ever collect on it. You must also have made a reasonable effort to collect the debt, such as sending multiple invoices or making phone calls.

If you meet these requirements, you can claim the bad debt as a short-term capital loss on your tax return. This can be a valuable way to reduce your taxable income, so it’s worth considering if you’re in this situation.

Reduce Tax Obligations with Bonuses

One strategy that can be used to reduce tax obligations is to give bonuses to employees. By doing so, businesses can lower their taxable income and take advantage of lower tax rates.

Additionally, bonuses can help to attract and retain talent. Employees who feel appreciated are more likely to be productive and loyal to their employer.

As a result, offering bonuses at the end of the year can be a win-win for both businesses and their employees.

Review Retirement Plans

One key area to focus on is retirement plans. Reviewing your current retirement plan can help you take advantage of any new tax benefits that may be available. It can also help you make sure that your plan is still on track to meet your long-term financial goals.

There are several different retirement plans available, so it’s important to do your research and choose the one that best fits your needs. Regardless of which plan you use, contributing to it regularly can help you build a solid foundation for a comfortable retirement.

Strategize Income and Deductions

As a small business owner, it’s important to be mindful of tax planning strategies that can help reduce your tax burden come year-end.

One such strategy is timing your business income and deductions. By carefully timing when you recognize income and incur expenses, you can minimize your taxes owed.

For example, if you’re expecting to earn a large amount of income in the next year, you may want to consider delaying the recognition of that income into the following year.

Similarly, if you know you’ll be incurring a large expense in the next year, you may want to consider bringing that expense forward into the current year. By taking advantage of these and other tax planning strategies, you can help reduce your taxes owed and keep more of your hard-earned money.

Review Your Business Structure

As the end of the year approaches, small business owners should take some time to review their business structure and make sure it is still the best fit for their needs.

The most common business structures are:

  • Sole proprietorships
  • Partnerships
  • Limited liability companies (LLCs)
  • Corporations

The type of business structure you choose will determine what taxes you will owe, how much paperwork you will need to file, and your liability if your business is sued.

If your business has grown and changed over the year, it may be time to consider changing your business structure to one that better suits your needs.

Talk to your accountant or tax advisor about which business structure would be best for your business, and make any necessary changes before the end of the year. By taking some time to review your business structure now, you can save yourself a lot of hassle and headache come tax time.

Keep an Eye out For Tax Credits

As a small business owner, it’s important to stay up-to-date on changes in tax law that could impact your company. With the end of the year quickly approaching, now is a good time to start planning for your business’s tax liability.

One key credit to keep an eye out for is the employee retention credit (ERC). The ERC was created in response to the COVID-19 pandemic and is available to businesses that have been impacted by the pandemic.

To be eligible, businesses must have experienced a decrease in gross receipts of at least 20% in any quarter compared to the same quarter in 2019. If your business meets this criterion, you may be able to claim a credit of 50%-70% of wages paid to employees during the COVID-19 shutdown period.

Check With ERC Today for Your 2022 Tax Planning Strategies

Are you getting ready to do your small business taxes? Getting your tax planning strategies in order is a critical part of the process, and with the end of the year quickly approaching, now is the time to start.

The team at ERC Today can help you navigate the tax landscape and take advantage of opportunities to minimize your tax liability. Apply today to learn more about our services and how we can help!

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