Last Minute Tips to Help Mitigate Your Tax Liability
December is a challenging month for most of us.
It can be a month of preparation for Christmas, decorating, baking, and finding and wrapping the perfect gift for a loved one. It can be a month of reflection looking back over the past year with gratitude or regret. It can be a month of happiness as you gather with family and friends or a month of loneliness as you may have an empty chair at the table. But December is also a month to look ahead to your next chapter.
As a business owner, December usually involves taxes in some way, shape or form. Our accounting team has compiled a few last minute tips for what moves to make before year end to help mitigate your tax liability in the new year.
Deductions & Depreciation
At a minimum, you should make sure that all of your bills are paid in 2022. Also, if you are in a good financial position, you can prepay some expenses as well. Accelerating expenses for the year will allow your business to get last minute deductions to lower your taxable income.
Another strategy that can be deployed is investing in fixed assets. If you plan to make a move on any fixed asset in the upcoming months, it might be worth executing before year end. The current laws allow for first year 100% write off for qualified new or used property put into service at any point in 2022. That means you can take a deduction for the entire year even if it is placed into service in the last month of the year.
If your business has been booming for 2022, you might consider deferring any additional billing until the beginning of 2023. Deferring these earnings until January, 2023 will push that revenue into another taxable year and shift the potential tax liability down the road. However, be careful with this tax planning strategy as most successful businesses plan to increase revenue year after year.
Review what business structure you're currently setup as and make sure it still makes sense not only in the present but long term. We see this a lot with self employed individuals. Changing from a sole proprietor to an S-Corp, for example, can significantly change a taxpayer’s tax liability. There is a certain level of income that makes that change make sense.
Where one-year ends, the next begins. Whether your next chapter involves a job change, retirement, starting a new business, or building your current business, Lockshield Partners encourages everyone to be proactive.
We at Lockshield Partners Accounting Services strive to take the surprise out of your tax situation. Make sure you are making the right moves to set your business up for long term success and contact us today for more information.