For most people, the end of the calendar year means enjoying the holiday season, deciding what to do for New Year’s Eve, and making resolutions that won’t last until February. But for business owners, its more about finances than festivities.
With the end of 2017 fast approaching, there is no time like the present to ensure you are up to date with everything from profit and loss statements to all of your tax forms. But what else will help you get through this often stressful time of year with your business confidence – and personal sanity – in tact? Here are some top financial tips.
Avoid trying to reduce your tax bill with unnecessary expenditure
Don’t be fooled into thinking that $1 spent means $1 worth of taxed saved. In fact, $1 spent only creates a $1 deduction, which depending on your tax bracket, business structure, and state of operation, may only lead to $.00 – $.60 worth of taxed saved.
As Michael T. Hanley, CPA, explains: “While tax deductions are great for businesses to fully utilize, they never provide an equal return for the dollars you spend, in order to get that deduction—which means you should never wastefully spend money just to increase your deductions.”
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Consider decelerating expenses into the current year
If you have experienced a bad year with lower than average profits, but expect things to pick up the following year, you may want to defer as many expenses into the following year as possible. Not only does it pay to create a plan of action for big purchases, it also makes sense for deferring big expenses too.
“If you are in the 20% tax bracket this year, but will be in the 30% tax bracket next year and you have $10,000 worth of expenses in question, deducting them this year will save you $2,000, while deducting them next year will save you $3,000,” says Hanley.
Know the difference between filing your tax return on the accrual or cash basis
“Most year-end tax strategies only work for cash-basis taxpayers,” reveals Hanley. “Accrual-basis taxpayers report all income in the year that it is earned and all expenses in the year that they are incurred.”
In other words, paying for a 2016 expense in 2017 doesn’t mean you can deduct that item in 2017. Your tax reporting designation can have a major influence on whether it is worth spacing out major purchases at longer intervals.
Start preparing for next year
It’s easy to forget that the close of one year also marks the beginning of another. But there is no better time to start planning and preparing for the future, especially as you will be looking at your financial health in great detail.
Think carefully about whether you have the employees and equipment for the year ahead. If not, make sure you have some credit in place to quickly fund a recruitment drive or major investment. By doing so, you can begin the next 12 months full of confidence and optimism.