As we slide into the last weeks of the year, business owners are preoccupied with a great deal of work.
You’re trying to wrap up the end of 2021 while keeping an eye on planning and projections for 2022.
One thing to consider — beyond holiday shopping, parties and gifts — is your year-end tax planning.
Key tax points to consider before year-end
There are many ways you can lower your tax burden for 2021, but some of the strategies have to be implemented before December 31st.
Here’s a quick checklist of our top 5 tips for year-end tax planning.
1: Defer or accelerate income
Whatever income you receive by December 31 counts for the current year. You can lessen your current year tax liability by postponing income to after January 1, pushing your payment due dates into 2022.
If you expect to be in a lower tax bracket next year, you might also want to defer income because you’ll pay taxes at a lower rate.
The opposite is also true — if you had a low year but expect 2022 to boom, you might want to accelerate payment due dates before December 31 so that you can count income in a lower tax bracket.
2: Decide what tax deductions you qualify for
Before you close your books for the end of the year, figure out what deductions you’re eligible for — especially during the pandemic and more work from home situations.
Some ideas are: home office, employee expenses, business use of a car, travel expenses, charitable contributions/donations. Make sure you discover how to claim each deduction — they vary.
3: Make any necessary purchases
You can also reduce this year’s taxes by buying year-end items. What necessary business expenses do you have? It could be anything from office supplies to machinery, company vehicles to equipment.
Again, consider if 2021 is a good year for you to make the purchases. Will it help reduce your tax burden?
4: Consider establishing a retirement plan
Whether you are opening a retirement account for the first time, or contributing more to it, you can reduce your taxable income with retirement accounts.
Decide between a 401(k), Simple IRA or SEP IRA and you can deduct any contributions made to the plan. Depending on the plan you can deduct the contributions before December 31 or up to the filing deadline.
5: Claim bonus depreciation
Many business owners have purchased equipment, machinery or furniture for the office, storefront or warehouse.
Typically, tax rules require you to depreciate certain items over their useful life. However, bonus depreciation allows you to write off 100% of those costs on your 2021 return.
Changes with the Tax Cuts and Jobs Act allow business owners to get a first-year bonus depreciation for qualified used and new property that was acquired and placed during the 2021 business year.
There are exceptions to the depreciation rules, so make sure you check with an expert before claiming.
Important tax law changes
We’re here to help your business navigate key provisions and changes in tax law.
Important tax information has been announced in legislation, such as the Consolidated Appropriations Act (CAA) and the American Rescue Plan Act (ARPA).
At the time of this blog being published, the “Build Back Better Act” (BBBA) has not been enacted into law. It is expected, though not certain, to be enacted by year end. If enacted, it may impact strategies on when to recognize income and expenses.
Consult a tax expert
Every business needs a customized set of solutions. We can help you navigate the business environment with tips and planning considerations for specific industries.
Fill out the contact form below to discuss your individual situation as year-end approaches.