What Do I Need to Prepare for Tax Savings At Year-End?

Nov 30, 2022

December 31st is coming fast and there are things you want to be doing to prepare for year-end. Remember, once the clock ticks over to a new year, so many tax saving strategies are thrown out the door. That is why we want to take the time here today to go through what you need to be doing now to prepare.

This is a two part series because next week we are going to be discussing year-end specific strategies so be sure to check that out as well.

Much of what we talk about today are things we preach all year long on the Small Business Tax Savings Podcast but this will serve as a reminder!

Year-End S Corporation Items

Are you taxed as an S Corporation? There are some year-end items you want to ensure you are completing before year-end.

  • Pay a Reasonable Salary
    • As an S Corp owner, you are required to take a reasonable salary (W2 Payroll). Be sure that you have ran a reasonable salary before year-end. Here is an article on reasonable salaries.
    • Remember if you have a SEP IRA or Solo 401k, that will be driven by your payroll so if you plan to maximize these out or take advantage of them, be sure you are running those numbers now and making sure those are factored into your payroll software.
  • Self-Employed Health Insurance
    • If you are operating as an S Corp any health insurance that you pay for yourself you need to be included on your W2. You get an expense on the business tax return, but then you include it as income on your W2, and then you get the final deduction for it on your personal tax return.
    • Make sure you contact your payroll provider before year-end to ensure that the self-employed health insurance premiums are in fact included on the W2. Here is an article on that.
  • Implement and Finalize Accountable Plan Reimbursements
    • An Accountable Plan is a reimbursement policy and expense reporting system that allows owners and their employees to turn in expense reports to the business for reimbursement in a way that keeps those amounts from being counted as taxable income.
    • It should be used for reimbursing you for items that are personal and business mixed that you paid for personally or an item that you accidentally paid for personally that is business related.
    • Some examples we see an accountable plan being used for is: Home Office, Automobile (owned by employee, not business), Office Expenses, Travel, Meals, Cell Phone/Internet, etc.
    • We did an article on this here: How Do I Reimburse Myself From the Business? When Does An Accountable Plan Come Into Play?

Year-End Maximizing Your Deductions

Remember, when we talk about maximizing deductions we are not necessarily talking about going out and buying things you do not need but rather how can we move after tax spending (money you are already spending) into pre-tax spending (find a business purpose and getting a business deduction for it).

Now of course, if you need a new business vehicle or equipment you can obviously take advantage of the tax code for that, we just do not want you to think trading a business purchase for a tax break, on something you do not actually need, is a good decision.

We did an entire article on this, How Can I Maximize Business Deductions and Write-Offs?,but wanted to highlight some items as a reminder.

  • Hire Your Kids (or Grand Children) in Your Business
    • This is one of the most under utilized tax strategies out there.
      • You get a business deduction for items you are typically paying personally anyways.
      • Your child can claim the standard deduction so any earnings under the standard deduction would be tax fee and then any income above that would be taxed starting in the lowest tax bracket.
      • You are likely paying for your child’s basketball camps, entertainment, technology, etc so why not get a business deduction for these items you are going to pay for anyway?
    • Now of course your child needs to be doing actual work for a reasonable rate in your business and you need to ensure you are setting things up correctly. We did an article on this here: Why Should I Hire My Kids In My Business?
  • Establish and/or Fund Your Retirement Plan
    • Note: Some retirement contributions can be made after year-end but look at your specific plan and contribution type to verify what options are available to you.
  • Throughout our Podcast, Learning Center, and Tax Minimization Program we have a ton of information on various items around maximizing deductions but here are some strategies to look into: 
    • 14 Day Home Rental Strategy (Augusta Rule)
    • Business Gifts
    • Corporate Board Meetings 
    • Health Strategies (Options for those with high medical costs, Health Savings Account (HSA), etc)
      • Complete HRA reimbursements if necessary
    • Home Office Deduction 
    • Purchase Equipment or Vehicle (and put in service)
    • and so much more...

Year-End Miscellaneous Items

Finally we have a few miscellaneous items that you want to ensure you are taking care of before year-end.

  • Charitable Contributions
    • Ensure you are completing any charitable contributions of either cash or property/goods before 12/31.
    • Remember, in order to take advantage of charitable deductions you have to be itemizing so be sure to see if it still makes sense. Often times we will see taxpayers "bunch" itemized deductions in one year.
    • You may want to consider donating appreciated stock rather than cash. If you donate the stock (instead of selling it) you deduct the fair market value of the stock as a charitable deduction and you don't have to pay any of the taxes you would have if you sold it.
  • Collect Data for 1099s
    • In general, if you have contractors/vendors that you paid $600 or more to, in total, you will have to send them a 1099-NEC. In order to generate a 1099 you will need a copy of a W9 filled out by them. If you do not have a W9 on file for contractors or vendors, get it now.
  • Roth IRA
    • Look into funding a Roth IRA or potentially consider doing a conversion.
    • You may want to look at a back door Roth IRA if you are a higher income earner.
  • Start Collecting Documents for Tax Season
    •  Complete Your Bookkeeping
      • This is so important! Make sure you get your bookkeeping completed and up to date, it will make tax season so much easier for you.
    • File Various Tax Documents (as you receive them) 
      • Charitable Contributions Records
      • Child Care Payments (Payee(s) & Amounts)
      • Estimated Taxes Paid Records
      • Forms:
        • 1099's
        • Mortgage Interest
        • Real Estate Taxes Paid
        • Student Loan Interest
        • W2's
      • Medical Expense Records
      • Payroll Documents
    • Save/File Your Receipts
      • Put your receipts on file (preferably digitally) so that you have them in a safe place should you need them down the road.
      • Also grab a copy of all your bank statements and put them on file.

As mentioned, this should serve as a reminder about many of the things we talk about on a regular basis.

Next week we are going to finalize the year-end tax saving discussion and be talking about What Year-End Tax Strategies Are Available to Business Owners?

As always, make this the year you pay the least amount in taxes as legally possible!

 

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