Year-End Tax Strategies: Is Your Business Set for Success?

Understanding taxes and how to minimize your liability can be challenging and time-consuming even for the savvy business owner. While each business will have unique needs, here are some tips to help you build a better framework for your tax strategy.

Over the years I've seen firsthand the stress and confusion that can arise during year-end. It's a time when even the most organized business owners can feel overwhelmed by the sheer volume of tasks and deadlines. Whether you're a solopreneur or running a large corporation, navigating the intricacies of tax laws and financial regulations can be daunting.

In this guide, we'll break down the essential steps to ensure a smooth and stress-free year-end for your business.

Table of Contents:

1. Tax Planning

2. Financial Statement Review and Update

3. Strategize for Next Year

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Tax Planning

Ideally, you engage in ongoing tax planning throughout the year as a business owner. A mistake I see all too often is relying on your tax preparer after the year has ended to be able to help you minimize your taxes. While there are some areas they can still make recommendations on after the year has ended, the scope of what they can do is far smaller than if you were to have implemented a strategy during the year. For this reason, we suggest thinking about your tax preparer as just that, someone who prepares the return, hire a tax planner to maximize your potential.

Here are some tips on what you can do before the year is over to boost your bottom line.

• Accelerate Deductions: Pay deductible expenses before the year-end, such as insurance premiums, property taxes, or contractor fees. *

  
  

• Defer Income: Postpone sending invoices or recognizing income until the next year if possible.*

  
  

• Utilize Tax Credits and Deductions: Research and take advantage of available tax credits and deductions, like those for research and development, energy efficiency, or charitable contributions.

  
  

• Consult with a Tax Professional: Work with a tax advisor to optimize your tax strategy and identify potential tax savings.

  
  

  *Depending on the accounting basis you use for your business. You should also consider the effect any decision will have on next year's finances in making this decision.

  
  

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Review and Update Your Financial Statements

Something that most business owners miss out on is having clean financial records. Whether you are a "DIYer" or hired an old friend to "do your books," there are often key pieces of information you are missing. Strong financials can not only aid in producing great insights, they can ensure you are on track to maintain positive cash flow, receive owner compensation, and even budget in profit as a forethought, not an afterthought! Not to mention, clean financials will save you time and money at year's end when you bring your files to your tax preparer.

Here are some tips to clean up those books if you've been slacking over the year.

• Organize Financial Documents: Gather all financial records, including bank statements, invoices, receipts, and tax documents.

  
  

• Reconcile Accounts: Ensure that all accounts, such as bank accounts, credit card accounts, and loan accounts, are reconciled.

  
  

• Review and Update Financial Statements: Prepare accurate financial statements, including income statements, balance sheets, and cash flow statements. 

• Consider Professional Help: If needed, hire an accountant or bookkeeper with knowledge of your entity structure and applicable standards and regulations to assist with year-end financial tasks.

  (Insider tip: consider ensuring your professional utilizes Generally Accepted Accounting Principals (GAAP) if relevant to your entity.)

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Tax Strategies for Next Year

I often find that implementing a sound strategy for the year ahead is one of the most impactful things you can do to put your business on track for growth. Remember, you're not alone. As a business owner, you are often stuck wearing the hat of many professionals. Just because you can't afford full-time help doesn't mean you can't outsource some of these roles. In fact, the most successful business owners bring in experts and mentors to help guide them.

We know you're strapped for time as a business owner, but making the time for these ideas for your business will set you on the path to success.

• Set Financial Goals: Establish specific financial goals for the upcoming year, such as increasing profit, reducing unnecessary operating expenses, or improving cash flow.

  
  

• Review and Update Business Plan: Revisit your business plan and make necessary adjustments to align with your goals.

  
  

• Budgeting: Create a detailed budget for the next year, including income and expense projections.

  (Tip: Include your profit and owner's compensation in those projections. Yes, Income - Expenses = Profit, but Income - Profit - Owners Comp = Expenses too! Change your framework if it needs it, and always, implement 0-based budgeting.)

  
  

• Tax Planning for the Next Year: Discuss potential tax strategies with your tax advisor to minimize your tax liability in the upcoming year.

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While these are just a few Year-End Tax Strategies, many more could be applicable to your situation. Your business's success can affect your personal wealth and health, so prioritizing best practices like those above is essential to harmony.

If your business needs some year-end assistance, reach out! At Faye Operations, we strive to reduce your stress, free up your time, and boost your profit.