7 Key Tax Questions to Consider as Year-End Approaches

As the year comes to a close, it's time to strategically evaluate your taxes. Smart planning before December 31 can reduce your tax liability, enhance cash flow, and set your business on a strong path for the new year. Whether you're a sole proprietor or manage a growing enterprise, these seven questions can guide your year-end review to uncover valuable savings opportunities.

1. Have All Business Expenses Been Captured?

Even minor expenses can add up to significant deductions, but only when they are accurately tracked. It's easy to lose track of receipts or overlook minor transactions, particularly if personal accounts are occasionally used for business purposes.

Before the year ends, consolidate receipts, check credit card statements, and ensure nothing is missed. Don't forget about recurring charges like software subscriptions, business meals, or professional memberships. A thorough review helps you claim every legitimate expense precisely when it matters most.

2. Should I Make Major Purchases Before Year-End?

If you're considering upgrading equipment, buying a company vehicle, or investing in new technology, timing can significantly affect your taxes. Under Section 179 and bonus depreciation rules, businesses may fully or partially deduct qualifying purchases in the current year instead of over several years.

Purchases before December 31 could bring those deductions into this year's return. However, assess if the purchase aligns with operations and growth goals rather than spending just for a tax deduction.

3. Am I Maximizing Retirement Contributions?

Retirement plans, like SEP IRAs and 401(k)s, are powerful tools for reducing taxable income while preparing for the future for both yourself and your employees.

Review your retirement plan options if you haven't lately. Increasing contributions can reduce current tax liability and set the stage for long-term security, benefiting even sole proprietors and small firms significantly.

4. How Are Payroll and Owner’s Compensation Structured?

Year-end is a perfect time to review how you compensate yourself and your employees. Ensure that your salary is “reasonable” if structured as an S-Corporation; inappropriate levels can cause issues. Evaluate withdrawals and tax payments for sole proprietorships or partnerships.

Adjustments made now can balance cash flow and avoid unwelcome surprises during tax season. Payroll reviews also ensure that benefits, withholdings, and bonuses are correctly reported before W-2s and 1099s start arriving in January.

5. Are There Overlooked Tax Credits?

Tax credits can be even more valuable than deductions, reducing your tax bill dollar-for-dollar. Depending on your industry, you may qualify for credits like the Research and Development (R&D) credit, energy-efficiency credits, or the small business health care tax credit.

These programs change often, so have your accountant check for any applicable credits. Even small credits can significantly impact your year-end tax balance.

6. Should I Adjust My Estimated Tax Payments?

Related surprises are never welcome. If your business income was higher or lower than expected, updating your estimated payments can prevent penalties and improve cash flow management.

Review year-to-date income and expenses and compare them with initial forecasts. If a strong quarter or new revenue streams have emerged, increasing the final quarterly payment might be wise. Conversely, if revenue dipped, adjusting down can preserve liquidity.

7. What Is My Tax Outlook for Next Year?

End-of-year planning isn't just about the current year, it’s also the right time to look forward. Decisions made today affect your company’s financial health for years. Consider how plans like hiring or expansion might influence your future tax position.

Discussing strategies with your accountant can map out how to balance short-term savings with long-term growth, like deferring income or accelerating deductions based on expected income levels next year.

Wrapping Up: Plan Now, Benefit Later

Successful business owners plan for taxes before January hits. A comprehensive year-end review can reveal deductions, credit opportunities, and smart decisions that keep more money working in your business.

If you’d like to discuss your year-end tax strategy, now is the time. Reach out to your advisor or contact us to schedule a consultation before December 31. Preparation today leads to savings tomorrow, setting your business confidently into the new year.