Tax Strategies & Credits

Year-End Tax Tips for Small Businesses

by
Delia Mena
on
9/22/2016
Year-End Tax Tips for Small Businesses

As we near the end of 2016, it’s time to start thinking about your tax liabilities. Fortunately, there is still time to take steps that will lower your tax liability for 2016. To decrease the amount of tax your small business owes for this year, follow these tips.

  1. Understand how tax is calculated.

Before you can take steps to lower your tax bill, you must first understand how it is calculated in the first place. On the most basic level, your tax liability depends on the income you earn during the calendar year and the deductible expenses you can claim. Thus, to lower your tax bill, you need to decrease your income and increase the amount of deductible expenses and tax credits you can include on your return.

  1. Evaluate your current position.

Take a look at all of your financial documentation for the year to determine where you currently stand with the IRS. Estimate how much income you must report and the amount of tax you will owe based on your activity throughout the year.

  1. Make some purchases. 

If you find that you will owe a balance to the IRS at the end of the year, use this time to make some deductible purchases for your business. For example, you may invest in new equipment your business needs. These purchases will help to offset your income so that you won’t owe as much tax at the end of the year.

  1. Pay some bills early. 

To offset your income even more, consider paying some bills that are due in January before the end of the year. This will allow you to deduct the payment for 2016 instead of 2017. However, keep in mind that this strategy will reduce your deductions for the following tax year.

  1. Defer payments.

If you use cash basis for your accounting method, you can lower your taxable income is to defer some of the payments you receive from customers or clients to January or later. Perhaps the easiest way to accomplish this is to delay billing and extend the due date. However, if your customers or clients pay early, the income will still count for 2016. In addition, like the strategy above, this strategy will increase your taxable income during the following tax year.

  1. Make donations to charity.

Donations to qualifying charities are tax deductible. If you need to reduce your taxable income for 2016, make some donations before the end of the year. Be sure to read the IRS’s guidelines carefully to make sure that your donations will be fully deductible.

  1. Maximize your retirement contributions.

Each year, the IRS allows you to make a certain amount of tax-deductible contributions to a qualifying retirement plan. If you haven’t already used your full allotment, now is the time to maximize this benefit.

  1. Consult a professional.

Managing the finances of a small business can be difficult, especially when you have so many other responsibilities. To maximize your tax benefits and minimize the amount you pay the IRS each year, talk to an accounting professional.

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Delia Mena

Delia Mena

Delia Mena, CPA is a Tampa based tax professional who specializes in accounting and tax preparation. Delia is the founder of her own tax based practice, Delia's Accounting Service, based in Tampa, FL. With over 12 years of experience, Delia's practice is fully equipped to assist clients with any of their financial needs. Delia's Accounting Service provides the perfect mix of independent paralegal's, bookkeepers, and notary public professionals providing high quality services to a wide range of clients. To learn more about Delia and her practice, visit her website.

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