I’d love to pay more taxes…said no one ever. :)
Including you.
As we head into the final weeks of the year, it’s time to consider proactive year-end tax planning strategies to lower your business's tax liability.
Even though tax filing deadline is a few months away, some strategies have to be implemented before year-end to apply.
What’s your Tax Goal?
The higher the taxable income, the higher the tax bill. So the typical goal is to reduce taxable income.
REALITY CHECK - You only owe taxes if you're profitable. So while I'm all in for ya to reduce your taxes to the lowest legal, ethical amount...I don't want you to lose sight of the accomplishment it is to have a profit!
Ready to see how you might reduce your taxes? I researched & read...and found these 8 ways to help reduce your taxable income.
Let's dive in:
1. Collect Income in January, not December
Consider invoicing clients in January instead of now so the cash is collected & the income counts in the new year vs this year.
You also would want to collect outstanding receivables in January instead of chasing them down in December.
2. Prepay Expenses
If you have bills for next year's services that can be paid now, you can go ahead and pay them before year-end and record them as a 2022 expense.
Some examples include:
Rent
Coaching
Insurance
Conferences
CFO services
Annual subscriptions
REALITY CHECK - This strategy assumes you have the extra cash flow to do this. Always keep up with cash flow forecasting - not having cash when you need it can put you out of business!
3. Make Tech & Other Office Purchases
If you were planning to make some tech purchases in the early part of 2023 and have the extra cash flow, why not go ahead and purchase it now?
iPad?
Computer?
Apple Watch?
Video Equipment?
You could also stock up on office supplies. (This girl sure loves her colored office supplies!😉)
4. Office Repairs
If it’s time to do some repairs around the office, consider taking care of them now so they'll count as 2022 expenses, reducing taxable income.
If you’re cash basis and you pay (or charge your credit card) before year-end, it’ll count as a 2022 deduction, reducing your 2022 taxable income.
5. Charitable contributions
If you make charitable contributions, remember that these are typically tax deductible (not political ones) so consider making those before year-end.
Give because you feel led to give back, but do check with your tax advisor about the deductibility of your giving. Not all contributions are deductible.
6. Fund Retirement Plans
The end of the year is the perfect time to be sure you have contributed all you can to your retirement.
Check out the rules for a Solo 401(K), SEP IRA, and IRA. If you don’t have one of these plans set up, do that before year-end.
I was surprised by how much I could contribute to our retirement through a Solo 401(K).
You can often contribute after year-end but only if the account is set up by year-end. This can be a great way to reduce taxable income while also contributing to your savings.
7. Car Purchase
IF you were planning to buy a car/truck to be used by your business and you have the cash and you are trying to reduce taxable income for 2022, you might consider purchasing that before year-end to reduce taxable income.
8. Hiring Minor Children
This was a new one for me - but is apparently very popular!
If your children can do some legitimate work for your business (remember we are keeping this ethical & legal!), you can hire them as contractors to work for your business - which will also reduce taxable income.
You can pay each of them up to $12,000 tax-free. They’ll then have earned income so you might consider setting up a Roth IRA for them.
BONUS - Your child will also develop a work ethic and learn about savings.
Who knows - your child may be your next office cleaner, graphic designer or model for your business.
I’m not a tax professional and offer no tax expertise, but I do know that you, my business owner friend are very interested in strategies to reduce your tax bill. This is a compilation of strategies I curated for you.
Always check with your own tax professional to be sure they apply to your tax situation. Do not rely on this alone. Blah blah blah. Legal disclaimer. :)
TL;DR
It’s the end of the year so it’s the perfect time to review your business’s taxable income position and implement some strategies to reduce the tax liability.
Some areas to consider include:
1. Collect income in January, not December
2. Prepay expenses
3. Make tech & other office purchases
4. Office repairs
5. Charitable contributions
6. Fund retirement plans
7. Car purchase
8. Hiring minor children
All these strategies require you to first consider your CASH situation. Cash is oxygen, my friend. Yes, it’s great to reduce taxable profit - but not if it means using up cash we need for operations.
Check with your tax professional before implementing any of these ideas to be sure they apply for your business. Every person and situation is different.
Thanks for reading!
Please email me (Christie@VictoryAdvisory.com) and let me know what one of your fave small business tax deductions is. I love to learn. Mine is definitely the Solo 401(k).
See ya again next week!
Whenever you're ready, here are 3 ways I can help you:
1. Interested in a 2023 planning session or cash flow forecast system? Schedule here.
2. Want to chat about how you can gain peace of mind & confidence with a fractional CFO by your side & on your team? Schedule a call to see if we'd be a good fit to work together.
3. I post on LinkedIn every weekday at 7:15a CST. I'm responding to questions in my DMs from 7:15- 8. I'd love to connect. Find me here,
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