Have you begun your year-end tax planning process yet?
The fourth quarter is the time for some proactive tax planning to lower your tax bill. For business owners, tax planning shouldn’t be a once-per-year exercise. Here are six, tax-planning tips to consider at year-end.
- Review your business entity setup (see What’s the best business formation setup in this booklet). As your business grows, your structure (entity) may change.
- Review your retirement plan. Slash taxes by establishing a retirement plan such as a SERP IRA, Solo 401(k), or a combination of a 401(k) with a defined-benefit pension plan (see How can I maximize tax savings using my retirement account in this booklet).
- Home office deduction. This valuable tax break can save hundreds, or even thousands, of dollars in taxes each year.
- Avoid shoebox bookkeeping. Track income and expenses throughout the year using a cloud-based tool your accountant can access.
- Claim first-year, 100 percent bonus depreciation on new property acquired and placed in service during 2021. If you’re having a big income year, consider moving up big purchases before year-end (see Should I buy equipment for year-end in this booklet).
- Proactive tax planning for potential 2022 tax changes, especially if your income is above $400,000 for single filers or $450,000 for married filing jointly.
Be proactive in your tax planning. If you expect to be in the same or lower bracket next year, try to defer some income this year to next year. If you expect a higher tax bracket, accelerate income in 2021 or delay deductions until 2022.