With the first three quarters of the year complete now is the time to review your records and create and execute a tax savings strategy.
Many people wait until year end to start taking steps to reduce their tax liability. But you may be able to save (or at least defer) more tax if you start tax planning earlier in the year. You’ll have more time to implement tax-saving strategies, and you potentially can avoid taking actions that could inadvertently boost your tax bill.
Now is the time to discuss your tax outlook and develop a customized approach designed to address your business’s unique financial concerns. Call our office to set up your year-end tax season review.
Here are some tips to get you started and items we will surely discuss:
#1 Ensure your bookkeeping is current
Bookkeeping impacts every item on this list. This is why it is so important to make sure your bookkeeping is current before the end of the year is here – current means it is done through the end of last month, or last quarter.
#2 Make sure your salary is on track
Optimizing how you take money out of your entity is an effective way to reduce your taxes. Now is the time to make sure the amount of salary you receive from your entity is on track. If changes need to be made, there is still time left in the year to make those changes without having to do one big adjustment at the end of the year.
#3 Make sure your elective retirement deferrals are on track
Just like salary, your elective retirement contributions play a huge role in reducing your taxes. You’ll want to make sure your deferrals are in line to support your tax strategy.
#4 Make sure your retirement plan is the proper fit
Furthermore, revisit your choice of retirement plan – they are not one size fits all. If your circumstances have changed you may want to scale your options.
#5 Make sure your loan and interest payments are on track
It’s very common to make or take a loan to or from your entity, or to have loans between your entities. Make sure the loan and interest payments are paid in accordance with the loan document.
If you don’t have loan documents, you’ll definitely want to get those in place.
#6 Check the documentation for your deductions
Documentation is a great way to successfully get through an audit. It is also a great way to increase your tax deductions because proper documentation leaves less room for deductions to get missed.
This includes documentation for travel, meals & entertainment, home office and vehicle.
#7 Check your “logs”
For your vehicle, your mileage log documents how many business miles versus total miles you have year-to-date. It’s an important piece of documentation to properly support your vehicle deductions.
For meals & entertainment, your log documents should document: the business purpose for the meeting that either preceded or followed the meal or entertainment.
#8 Add an entity
Entities are one of the greatest tools to reduce taxes. Knowing the right time to add an entity and knowing the right entity to add can save as much as $10,000 per year in taxes. However, the entity needs to be in place in order for the tax savings to occur.
#9 Change how an entity is taxed
When I create a tax strategy with a client, it’s not uncommon for an entity to be created knowing that once it reaches a certain level of income, an election will be made to change how the entity is taxed. Missing this election or not making it at the ideal time can be a very costly tax mistake.
#10 Have your annual meeting and create your annual meeting minutes
Meeting minutes are an ideal place to document the activity in your tax strategy. All the items on this list should make their way into your annual meeting. Make your annual meeting and minutes part of your year end planning.
We look forward to hearing from you and working with you to establish your plan.