There is still time left to start planning for the coming year. Many of the items that should be on your to-do list will be tax-related so as to maximize your net income. Touch bases with your accountant if you’re not sure the tax implications of a purchase or sale like a vehicle or a building. The general theme your CPA will mention is to accelerate expenses and delay income until the following year to max-out on tax benefits. So how exactly does one do this?
Spend Money if Necessary: If you’ve got expenses you’ll need to make in early 2020, buying them in December can help lower your taxes. This is one reason why you have a prepaid account on your income statement. Paying vendors, contractors, and memberships that you’ll need to pay for in early 2020, the IRS allows you to prepay many of those items now so you can deduct them as 2019 expenses. The following graphic depicts an example of the IRS Section 179 tax deduction.
Delay your Receivables: This is the opposite move of increasing spending for tax purposes. If you have receivables that can wait until January 1, 2020, then your taxable income will be less this year. Depending upon the size of the account, it’s better to have the money in your bank and pay higher taxes than to have to wait months and months for payment.
Fund a Retirement Account: If you haven’t already set up a retirement account, it would be beneficial for tax purposes to do it now. If you set up an individual 401(k) or a 401(k) for your business, you have to establish the plan by Dec. 31, though you have until your tax deadline to fund it. If you are one of the many solopreneurs you can utilize the following chart regarding a 401(k).
Back Up your Data: The majority of small business owners have all their data on their computer or server with absolutely no backups, especially no backups in the cloud. Hard to believe in this day and age. Computers, laptops, phones, servers can all be lost, stolen, burned or flooded. Data was one of the unmentioned victims of the California wildfires this year. Keep a backup of all your important data, things like your financial records, customer records, inventory lists, etc. – in the cloud.
Buy a Vehicle: Spending money this year is especially beneficial thanks to the Trump tax cuts. Does this factor into the impeachment decision? The Tax Cuts and Jobs Act allows for 100% depreciation for heavy vehicles and generous depreciation for passenger vehicles bought and used in 2019. So if you are in need of a vehicle go ahead and get it this year and you will reap the benefits of an entire year of depreciation.
Take time from your busy business and enjoy the holidays with family and friends. Good luck with your endeavors in 2020!