Year-End Tax Planning Tips for Business Owners 

With so much going on with holiday parties, kids out of school, and opening all of the Amazon boxes, I am sure thinking about taxes might not be at the top of your to-do list. However, certain things must be done before the clock strikes midnight on New Year’s Eve, or it will be too late. But don’t let tax planning dampen your festive spirit. Instead, view it as a way to set yourself up for a smoother 2024. So, let’s get into some easy ways to wrap up 2023 and make sure you’re ready for whatever 2024 brings, without getting lost in tax jargon.

Here are some practical year-end tax planning tips for business owners looking to reduce their upcoming tax bill or at least prepare for what they will owe.

Review your annual income and expenses.

Make sure they are accurate and complete. This one seems pretty self-explanatory, but if you don’t have everything organized and know what you collected and paid out, they will be lost forever. If you still need receipts, invoices, or payments, now is the time to find and record them. We recommend working collaboratively with your accountant monthly, so you don’t have to scramble to gather all this at year-end.

Buy any necessary equipment.

For equipment purchases, if you purchase them now via a credit card or financing, you can still depreciate the equipment as long as it is placed in service before the end of the year. You may qualify for accelerated depreciation based on your income, and there is still the availability of what is known as bonus depreciation, in which you can depreciate up to 80% of the asset in the current year.

Review your inventory.

Make sure the amount of inventory in your books is accurate. If you still need to do an inventory count, be sure to do so before the end of the year and adjust your books accordingly. You may find some obsolete inventory you need to discard or sell at a discount. Now is a great time to do it.

Review your accounts receivable.

Ensure no unpaid invoices are owed to you that need to be cleaned up. We often see old receivables never collected with some of our new clients. If you have an accrual method of accounting for tax purposes, you have likely paid taxes on invoices you have yet to collect. If you use the cash method of accounting for tax purposes, this is less important, but having clean books and records is still critical. However, many taxpayers can’t use the cash method, so if this is your situation, now is an excellent time to clean up the list of your uncollectible receivables. An even better tip is to use a collection agency to get the money owed to you.

Review your accounts payable.

All the invoices you received in 2023 must be recorded on your books. Much like the accounts receivable tip, if you are on an accrual basis, these invoices are deductible when you receive them, not when they are paid, as long as they are paid within 2 ½ months of year-end. If you are on a cash basis you get to deduct these expenses when you pay them so, if you have the cash and plan on paying them anyway, paying them before year-end is to your benefit. If the vendor will take a credit card, you can even pay the invoice via a credit card and get the deduction this year and pay off your credit card in January when the bill comes in. You may also get some points or frequent flier miles, so it’s a double benefit. If there are old unpaid bills on your accounts payable list, now is an excellent time to clean these up if they are not going to be paid or if there was a credit that wasn’t applied.

Make any charitable donations that you were planning on. 

You can deduct up to 50% of your adjusted gross income for qualified donations, but make sure you have the proper documentation and receipts. Non-cash contributions of old equipment, fixtures, clothes, etc., should also be donated before year-end. Be sure to detail what you contributed and use a simple thrift store pricing guide.

Here’s our charitable valuation guide to help determine the amount you can deduct.

Maximize your retirement contributions. 

You can reduce your taxable income and save for your future at the same time. To set up a new Simple IRA plan for 2023, this had to be done by October 1st. A 401k takes even more time to set up, so unless you have the plan already established, you may be limited to what you can contribute for 2023 but go ahead and start the process so you are ready for 2024.

Deduct any home office expenses.

If you use part of your home exclusively and regularly for your business you can claim a portion of your rent, utilities, insurance, and other expenses based on the size of your home office.

Pay your taxes one way or the other if you expect to owe.

There is underpayment of estimated tax penalties that add up if you don’t pay what you are supposed to. If you can, pay your estimated tax. The last quarterly estimated tax is due January 15th, 2024. If you don’t have enough money now but have determined that you will have an amount due when you file your tax return, we recommend dividing that by the number of weeks you have between now and April 15th. 

There are 15 weeks between January 1st and April 15th. Divide the estimated amount you owe by 15 and set up a recurring automatic drip to a savings account. The more automated it can be, the better.

Transform Plans into Action!

When it comes to taxes and financial planning, having a plan is undeniably better than operating without one. As we say goodbye to the current year and embrace the possibilities of 2024, remember that a strategic approach today can pave the way for a more profitable tomorrow. If you’re eager to enhance your plan for the coming year, don’t hesitate to reach out to us. At Patrick Accounting, we empower small business owners to thrive by streamlining their financial processes and addressing personnel challenges. We would love to help you thrive in 2024!

And for those hungry for more helpful resources and ways to connect with other business owners? Check out our upcoming events. We’ll see you in 2024!