The end of the calendar year means a lot of things for small businesses. It's time to start thinking about what you want to achieve next year and work on your formal goal setting process. Your are probably in the midst of holiday shopping for your employees, vendors, clients and colleagues. And, of course, it's time to start closing out your books for this calendar year.
In fact, right now is the time to check-in with your accountant to see if there is anything you should be doing to make sure your business ends the year fiscally healthy. A few small changes can make a big difference in your total income and tax liability for the year.
To get you started, here are a few important year-end tax preparation steps you can take in order to close out the year financially and take advantage of additional deductions:
1. Review Your Reports
How was your year financially? This info is vital for your goal setting process and to ensure your books are up-to-date and accurate. Have your bookkeeper or accountant run all of the reports that are relevant for your business and schedule a time to walk through them together if you need more explanation on the numbers and specific breakdowns.
2. Defer Income
Any income received by December 31 counts as income for the current year. Shifting income to after January 1 delays it from being counted as income until the following year, and this can save you a significant amount of money, depending where you income levels are each year. So ask your accountant if it makes sense to defer December payments until January to cut your tax bill.
3. Make Purchases
Now is the time to spend money on items your business needs so you can maximize deductions. Does your equipment need to be upgraded? Can you stock up on office supplies? Are there vendor payments you can make in advance? Make a list of purchases you can make now to get the most out of your deductions.
4. Run an Inventory Check
If there has been a drop in market value of your inventory, you may be able to claim additional deductions. This depends on your accounting methods, so make sure you check with your accountant to see if this makes sense for your small business.
5. Start or Contribute to a Retirement Plan
Make payments to your retirement plan or set one up before December 31 to reduce your income for this year. Now is the time to max out your contributions. If you haven't yet set up a retirement account, talk to a financial advisor to determine which plan is best for your business.
6. Contribute to Charity
Not only is making a charitable contribution from your small business a great thing to do during the holiday season, but it can also be a good idea for your business finances. And you don't have to donate money. You can also donate items such as clothing, toys and other goods, and claim a deduction for the fair market value. Just be sure to get proper documentation and a receipt for your records.
7. Start Preparing for Next Year Now
Remember the slight panic that set in when you started thinking about closing out your books, digging for the data your accountant or bookkeeper asked for and through about your business finances as a whole? Get a jump on next year now by outlining a system you can use to make the process even smoother next year. Getting organized now will make next year a breeze!