The end of the year means a lot for small businesses. It is the time to start contemplating what you want to accomplish next year and work on your formal goal-setting process. You are probably in the middle of Christmas shopping for employees, suppliers, customers, and colleagues. And, of course, it is time to commence closing your books for this calendar year.
Now is the time to consult your accountant if there is anything you need to do to make sure your business ends the year in order. A few key changes can make a big difference in total income and tax liability for this year.
To get started, here are some important steps to prepare for the year-end tax you can take to close the year financially and take advantage of additional deductions.
How was your financial year? This information is essential for the goal-setting process and to ensure that your books are up to date and accurate. Ask your accountant or book keeper to run all relevant reports for your business and plan a schedule to review together if you need additional explanations on specific numbers and details.
Receipts received before December 31, 2019, are considered revenue for the current year. The transfer of money after January 1, 2020, delays the recognition of income until the following year, which can save considerable amounts of money, depending on the level of income each year. Ask your lawyer or accountant if it makes sense to defer payments from December to January to reduce your tax bill.
Now is the time to spend money on the items your business needs to maximize deductions. Need to upgrade your equipment? Can you provide office supplies? Are there any vendor payments you can make in advance? Make a list of the purchases you can make now to make the most of your deductions.
If there is a decrease in the market value of your inventory, you can claim additional deductions. It depends on accounting methods. So consult your accountant if this is suitable for your small business.
Make payments for your pension plan or create one before December 31 to reduce your income for this year. It is now time to maximize your contributions. If you have not created a retirement account, contact a financial advisor to determine the plan that is best for your business.
Charitable giving from your small business is not only a good thing during the holidays, but it can also be a good idea for your business finances. And you don't have to give money. You can also donate items such as clothing, toys, and other goods and claim a fair market deduction. Ensure to get the right documentation and a receipt for your records.
The cost of services can also be deducted, provided that the service is qualified as a business expense. If you plan to pay an accountant or use an online accounting service to help you keep track of a large number of accounts, organize and pay for the service before December 31 and claim the expense as a tax deduction.
Do you remember the slight panic that occurred when you thought about closing your books, looking for the data required by your accountant, or the finances of your business in general? Get a head start of year now by outlining a system that you can use to make the process even easier next year.
