December’s an important month in your small business. You’re focused on year-end sales or throwing holiday parties or cleaning up the office. But it’s also time to take a few simple steps to save on taxes when it comes time to writing out that check to the IRS in 2016.
By focusing on just eight key steps, you’ll also be getting your business – and your finances – in better shape for 2016. (The steps below all assume your fiscal year is your calendar year, as it is for most small businesses.)
1. Talk to your CPA. Last week, I had my year-end talk with my CPA. If you don’t have a good tax advisor, find one. The money you spend on a really good CPA is a well-invested business expense. My CPA, Steve Thielmann, has been one of my most important business and personal advisors, saving my business money and increasing my personal financial security.
2. “Accelerate expenses, delay income.” That simple phrase is the basic rule each year. By making purchases now and delaying receiving payments, you lower your total 2015 profits. That reduces your tax burden when it comes time to file. Of course, you don’t want to spend wildly. Just prepay some expenses now, such as January rent, industry association dues, subscriptions. To delay income, wait to send invoices ‘til after January 1. Of course, if you need money to pay your bills, or your customer might flake, get those invoices in the mail NOW.
3. Buy a vehicle. Or another piece of business equipment. If it’s getting time to replace that SUV you use in your business or your computers, you might want to do so before December 31. Under Section 179 of the IRS code, you can “expense” (write off completely rather than depreciate over a number of years) certain expensive business equipment, giving you a better tax deduction this year. The upper amount you can ‘expense’ is $25,000 per purchase ($200,000 total), which includes vehicles over 6,000 pounds. If you buy a smaller passenger vehicle – used for business – the deduction limit is $11,160. Of course, don’t buy a new vehicle for your small business unless you actually need, and can afford, it.
4. Set up a qualified retirement plan. This is really important. It’s time to think about your personal long-term financial security. Small business owners typically imagine the business will be their retirement income, but that’s risky thinking. Start putting money aside. Most retirement plans must be established by December 31, though you don’t have to put money in them until April 15 or whenever you file your 2015 taxes.
5. Check your health insurance. If you want to lower your premiums, increase your benefits, or tailor your plans to your changing needs, make those decisions now. Under the Affordable Care Act, you only have until December 15 to enroll in or change plans for coverage to begin January 1. And be sure to use your 2015 benefits before they expire, such as check-ups, dental visits, or a new pair of eyeglasses.
6. Update financial systems. The beginning of the year is the ideal time to update your financial systems. Record keeping is far easier if you change when the calendar changes. For example, if you’re still using spreadsheets for your bookkeeping (and why are you?), January 1 is the perfect time to switch to a cloud-based accounting program. That way you’ll have 2015 records in Excel and 2016 records in your new program – rather than splitting a year between two systems. This applies for all key operations, such as payroll, credit card processing merchant accounts, even backup and customer relationship management tools.
7. Change your bank. If you’ve been thinking about changing your banking relationship, the end of the year is a good time to switch over, for the same reason as above: it makes record keeping easier.
8. Make charitable contributions. Even with the economy doing well, 2015 has been a tough year for many people and non-profit organizations. They need your help. Write out checks or give your credit card by December 31. You’ll help other people, the planet, animals, or whatever cause you support and lower your taxes at the same time. Do well by doing good.
Copyright, Rhonda Abrams, 2015
This article originally ran in USA Today on December 11, 2015
Seizing Opportunities
