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Top 5 Year End Tax Planning Tips for Small Business Owners

October 27, 2015

Navigating complex tax rules as a small business owner is a tough job, make sure you give yourself enough time for year-end tax planning.

Research has shown that a large area of concern across small businesses today is state and federal tax issues, stemming from the complexity of the current tax code and the inconsistency between small and large business tax rates. Fortunately, there are some preemptive measures small business owners can take to make things easier in the long run. Like all taxpayers, business owners should avail themselves of certain proactive tax-planning strategies for the last couple months of 2015.

Tips for small business owners

There cannot be enough emphasis on the importance of being proactive with your year-end tax planning. Consult your tax advisor for more details and advice on your particular situation. Refer to our recent year-end tax planning blogs for more guidance for individuals and businesses.

Questions? Contact any member of our Tax Services Team.

  1. Defer income and accelerate deductible expenses.
    • Is your business a partnership, sole proprietorship, S corporation, or limited liability company? On your Form 1040 you would report your share of the business’s income, which would be taxed at your personal rate.
    • There are no changes scheduled for 2016 regarding individual federal income tax rates, so deferring revenue into next year while accelerating deductible expenses into 2015 is a worthwhile move (if you expect to be in the same or lower tax bracket for 2016).
  2. Or…accelerate income and defer deductible expenses.
    • If you expect to be in a higher tax bracket because your business is prospering, accelerate revenue into 2015 and delay deductible expenses until next year.
  3. If you are a C Corporation, you must consider the 2016 corporate income tax rates (which are expected to be the same as last year).
    • If you expect to be in the same or lower tax bracket for next year, it will be best to defer income and accelerate deductible expenses.
    • If you predict a higher tax bracket for next year, accelerating income into 2015 and deferring deductible expenses is your best bet.
  4. If your business is a cash-basis entity, be smart about how you schedule payments.
    • It pays to use credit cards for recurring expenses that are scheduled for early 2016. Even though the credit card bills will not be paid until next year, you are able to deduct the charges in 2015.
    • You can also use checks to pay expenses and mail them right before year end, because according to the tax code, cash basis entities can deduct expenses in the year checks are mailed, not cashed or deposited.
    • Prepaying expenses is another option—provided that the prepayment does not go beyond the end of 2016, or 12 months after the first date where your business realizes the benefit of the transaction.
    • Revenue does not have to be reported until cash or checks are physically received, so postpone sending invoices for work done at the end of December so you can be paid in early 2016.
  5. Carry back/carry forward a net operating loss (NOL).
    • If your expenses outweigh your revenue, you can increase your cash flow by carrying a 2015 NOL back for up to two years, so you can retrieve taxes paid in years prior.
    • As an alternative, if you expect your tax rates to bump up and that the NOL deduction could save you more on taxes in the future, you can carry the NOL forward for up to 20 years.

There cannot be enough emphasis on the importance of being proactive with your year-end tax planning. Consult your tax advisor for more details and advice on your particular situation. Refer to our other year-end tax planning blogs for more guidance for individuals and businesses.

Questions? Contact any member of our Tax Services Team.

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