When December rolls around, I think about all the end-of-year things to do in my small business. Yes, I know, I should be dreaming of Santa and sleighs, holidays and hot chocolate, but I’m thinking about how to make or save more money – and especially how to save on taxes – in these last few days of 2021.
If you, too, would rather squeeze the most you can out of this year rather than dealing with the relatives who came at Thanksgiving and won’t leave ‘til January 2, here are 15 things to do now.
1. “Accelerate expenses, delay income.” That’s the year-end tax mantra to help reduce your 2021 tax bill. In most cases, you want to reduce 2021 income (without actually hurting your pocketbook, of course). If you run your business on a cash, rather than accrual accounting basis, you might send out your December invoices late in the month to delay getting paid til 2021. That way, you’ll defer the tax bite for a year. If you can legally write off an expense in December, you’ll get the deduction a whole year earlier.
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2. Call your accountant. Every small business is unique. Get the tax advice that fits your business. You may have had smaller profits in 2021 than you confidently expect in 2022. Or you may be entitled to some special tax benefits (see below).
3. Ask about the Employee Retention Credit. This disappears Dec. 31! If you had significant business losses or were forced to close due to COVID and retained payroll employees, you may be entitled to a federal tax credit. So make that call and ask your accountant if you qualify.
4. Set up a retirement account. Although you have until your tax filing deadline to set up and contribute to a SEP-IRA or solo 401K, why not take care of it now and get ahead on your retirement planning?
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5. Buy those new computers or software. C’mon, are you still using those old PCs from 2010? It’s time to upgrade, especially if you’ve had a good year. Typically, computers have to be depreciated over time, but with Section 179 expensing, you’ll probably be able to write them all off this year.
6. Buy a vehicle. If you need a new car, van or truck for your business, you may be able to write off a huge chunk of the cost – or even the whole cost for a vehicle weighing 6000 lb. or more. That’s due to something called “bonus depreciation.” If you need a vehicle, talk to your accountant for advice soon.
7. Line up new bank and operations services now. If you’ve been thinking of changing banks, or want new accounting, human resources, mail or other services, it’s easiest if you make the switch on Jan. 1. So get that set up now.
8. Switch to annual subscriptions of your online (“SaaS”) applications. If you use cloud-based business applications, make sure you’re paying annually rather than monthly to save money. If you pay now, you can deduct those expenses this year. (I use a bunch of these, like my accounting, email newsletter, website hosting, payroll and many more services.)
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9. Buy inventory. While there are limits to how you can write off inventory, especially if you use an accrual accounting basis, if you can legally deduct some now for inventory you know you’ll need, this is a way to get a deduction sooner.
10. Cancel subscriptions you don’t use. This includes extra licenses you’re paying for on cloud-based applications.
11. Give your customers year-end deals. While you may want to defer income for tax purposes, it’s always good to make more money. So if you have extra inventory or just want to get more dollars in your account, consider last-minute deals.
12. Use your health care dollars. In many health, dental, and vision plans, you’re entitled to certain annual benefits that disappear on Dec.31. Use those now.
13. Thank your customers, employees, and business friends. Your success depends on them. Let them know you’re appreciative.
14. Make charitable contributions. Now’s a good time to remember others. And you’ll get a tax deduction, too.
15. Pat yourself on the back. The last couple of years have been hard – really hard. You’ve gone through a lot. You deserve recognition. Small business owners don’t have anyone else to tell them ‘good job’ so I’ll do it: “Great job, small business owner!” But be sure to pat yourself on the back, too.
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