Year-End Tax Planning for Cash-Based Businesses

As the year ends, cash-based businesses need to focus on tax planning. Cash-based businesses record income and expenses when the money is received or paid. To avoid surprises during tax season, proper planning can help you maximize deductions and lower your tax burden.

Here are some critical steps to help you get started.

1. Review Your Income and Expenses

Now is the time to carefully review your records. Make sure all income and expenses are recorded accurately. If any receipts or payments are missing, gather them before the year ends.

• Check for any unrecorded sales or income.
• Review your expenses to ensure you have all receipts.
• Separate business expenses from personal expenses.

2. Take Advantage of Tax Deductions

There are many tax deductions available for small businesses. If you haven’t taken advantage of them, you still have time to do so before the year ends. Purchase business equipment or supplies to claim deductions.

• Deduct travel expenses related to your business.
• Use the home office deduction if you work from home.

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View our 34 Big Tax Deductions for Businesses in 2024 infographic and have the list available during our tax—planning call.

 

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3. Defer Income or Accelerate Expenses

One way to manage your taxes is by adjusting when you receive income or pay for expenses. If possible, delay receiving income until the next year or pay some expenses before the year ends.

• If you expect to earn more next year, delay payments until January.
• Prepay expenses like rent, insurance, or utility bills for January.
• Purchase supplies or equipment now to deduct this year.

4. Contribute to a Retirement Plan

Contributing to a retirement plan can reduce your taxable income while helping you save for the future. You can set up a SEP IRA, SIMPLE IRA, or a solo 401(k) if you don’t have a plan.

• Make contributions to your retirement plan before the year ends.
• Deduct these contributions from your taxable income.

Example: Prepaying Office Rent

Let’s say you rent office space, and your rent is $1,000 a month. If you pay January’s rent in December, you can deduct that $1,000 from this year’s taxable income. This reduces your tax burden for the current year.

Proper year-end tax planning can help your cash-based business save money and avoid stress. Review your financials, take advantage of deductions, and consider deferring income or prepaying expenses. By planning, you’ll be ready for tax season and save money.

Year-end is around the corner. Remember to schedule your tax-planning meeting with us soon.