End of the year is always a busy time especially if it falls during the holidays. There are several quick and easy ways to save on or put off till next year some of your tax burden. Of course when you are dealing with the IRS you want to be especially careful in what you do. It is always prudent to consult your tax accountant with what you intend to so. That being said here are a few you might consider:
- Prepay deductible expenditures
- January Mortgage payments. Paying January installments gives you 13 months’ worth of deductible interest
- State and local taxes
- Medical expenses
- Any other expenses you might pay in January that you might be able to pay in December
- Give to Charity prepaying charitable donations that you would make next year can reduce your 2014 taxes
- Prepay College tuition
The end of the year for me came between November 30 through December 31. It was always a crazy very busy time. I owned several businesses which all had to be closed at that time. This, coupled with the typical stress of the Holidays, made me somewhat of a Scrooge. But then I picked up some tips that made year end closing easier. I ‘m going to share those tips with you in hopes that your family doesn’t run and hide when you came home the way mine did.
First, end of the year planning needs to begin way back before you start the year. I learned that budgeting for the next year prior to the year’s beginning will dramatically reduce stress at the end of the year. You should decide what amount of profit you want to have at the end of the year and then work backwards from the desired profit to have a better chance of making money rather than just going with the flow and ending up with a small profit or worse, a loss.
Ask your sales people what they think the next year will be like. If they are paid partially on commission, they will have a pretty good idea of where they will want to be. Additionally, listen to many forecasters on the economy. Then throw that information out. The truth is, for a small business, you and your sales people will have the best information about the local economy and what next year will bring.
I also look at past years performance. I have twenty years of history on my computer, but I find that the past three to five years history is germane. Once I have a sales figure, I can then fill in the expenses. Fixed expenses are easy, they shouldn’t vary too much from year to year. You might want to use an inflation factor for these items. The other variable items will go up as the same as the percentage of sales went up. Be careful with expenses that have both a fixed cost and a variable cost in them. Once you have finished, you can see if it gives you the desired profit. If not, you will have to raise or lower your sales or expenses until your budget is in line with desired outcome. Once you have accomplished your budgeting, you should to review it on a monthly basis to make sure your business is in line with your budget. Make changes if necessary.
Once you have your budget in place and things are going along well, you will be prepared for year end. Approximately one month before the end of the year, check with your accountant to see if there are any changes in the tax codes to see what effect they might have your taxability. It is also a good time to take an inventory of your stock. Many times the amount of inventory you have will determine your profit since it is usually the last figure you will enter on your balance sheet. Each dollar of inventory at this point will go directly to the bottom line
You should start working on your accounts receivable to determine if you have some that are not collectible. If you have any, you will want to write them off now. This is another item that directly effects profitability. If you had a profitable year, you might want to think about any capital purchases you want to make so you can take advantage of the depreciation write off.
With these suggestions, you can use your cash flow to accommodate your tax payments and hopefully make your life easier.