In your small business, it’s almost time for you to tear the December 2017 page of your calendar off the wall. Before you do, there are three last-minute, year-end steps you can take to improve your small business bottom line for 2017.
For advice on year-end financial tips, I turned to three of the leading small business accounting software companies: Intuit Quickbooks, Xero, and, FreshBooks. Here are three of the most important steps both they and I recommend:
1. Maximize deductions; reduce income
A long-standing rule of year-end tax planning is to “accelerate deductions, delay income.” Why? Doing so reduces your 2017 taxes. This year that’s particularly important, with the possibility of a new tax bill that alleges to reduce taxes on pass-through income (the kind most small businesses have).
Here’s what Quickbooks recommends: “If your income is higher than normal, you may want to think about sending out invoices for December projects in January… In addition, you may want to pull the trigger on some additional equipment purchases or other business expenses this year if it will help you from reaching a higher tax bracket. Spending wisely on your business (i.e. those things that will help you increase productivity or expand your business) is one of the smartest investments you can make.”
Additionally, Quickbooks suggests adding in an extra state tax or mortgage payment. Pay attention, especially if you live in a high tax or high property value state. The proposed tax reform bill will limit your ability to deduct both tax and mortgage payments—which can mean higher taxes for you.
2. Maximize retirement contributions
One of the most effective, and smartest, ways to both reduce your taxes and increase your financial security is to create and maintain a retirement account. Many small business owners imagine they’ll fund their retirements by selling their business. For most, that’s not realistic. Few small businesses sell for enough to fund secure retirements. Instead, every year, make sure you are contributing to a retirement account, like a SEP-IRA or 401(k). Check your options now as some of these plans must be set up before year-end.
Here’s what FreshBooks suggests for the sole proprietor: “As a self-employed individual, you need to be extra diligent about your retirement savings, since you don’t have a traditional 401(k) and automatic withdrawals taken from each paycheck. It’s all too easy to push these contributions down to the bottom of the financial priority list. Retirement accounts, like IRAs, not only help you build a much-needed retirement nest egg, but contributions also lower your taxable income for the year. If you aren’t already contributing the maximum to your retirement plan ($5,500 per year for a Roth/Traditional IRA), check your budget to see if there’s any extra money you could move now.”
3. Pay your vendors now
If you have the cash in your bank account, make sure you pay for any purchases you made or services you used in 2017 before December 31. This provides you with additional deductions, and you’ll start 2018 with less debt. Here’s what Xero recommends: “Pay your vendors and contractors in full by year end. For vendors, this is straightforward. For contractors, you may have to submit a W-9 form—check with your accountant. You will also need to give each contractor a 1099-MISC form by 31 January.”
Xero also reminds small businesses that before year-end they should: “Decide on employee bonus payments and withhold the required tax. If you decide to reward your employees with bonuses, don’t forget about tax. Bonuses are subject to income tax withholding, FICA and FUTA taxes—just like regular pay.”
Other year-end suggestions these three leading accounting companies recommend are: be sure to back up your data and your contacts; closely evaluate your financial statements, particularly your cash flow, to both see what makes you profitable and also to see how cash is coming in and out of your business; arrange a meeting with your tax planner; and one of my favorites, from Quickbooks, review your accomplishments in 2017 and share that list with those you work with. A good way to start the new year is to remember that you accomplished a lot in 2017.
Copyright, Rhonda Abrams, 2017
This article originally ran in USA Today on December 20, 2017
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