6 Year-End Tax Strategies
December 14th, 2011 by MornaWith just two and one-half weeks left in the year, you can still make decisions that may lower your tax bill. Here are six for you to consider with input from your accountant:
1. Review your business books. You should be doing this on a regular basis, though I realize that most artists steer away from numbers! You need a clear picture of your earnings and expenses before you make any decisions that will affect your taxes or the life of your business. Talk to your accountant or bookkeeper about your current numbers and ask if you should be tracking something you aren’t.
2. Defer your income. Unless you expect to make considerably more income in 2012, you might want to defer income until after the first of the year. If this is the case, send out your invoices late this month so you won’t receive payment until January.
3. Increase your expenses. Stock up on business equipment and supplies before year end. Pay some of your bills early.
4. Contribute to your retirement plan. Review requirements for payments to your plan. If you don’t already have an individual 401(k), you may want to set up one before the end of the year.
5. Give. Charitable donations are tax deductible if you have a receipt. I recently made a couple of microloans through FINCA (www.finca.org) to women in Afghanistan in handcrafts businesses. You can also find microloan opportunities at kiva.org. Your very small loan will make a difference.
6. Invest in yourself. Since self-development is tax deductible, now is a good time to plan ahead to attend our first Creative Arts Business Summit. You’ll learn strategies you can use every day to grow your creative arts business and the investment is tax deductible.
These strategies apply differently to each business owner based on her particular situation. Since I’m not a financial professional, take time to discuss your strategy with your personal tax advisor. I had a discussion with mine last week and made a few adjustments that will make a difference.
Please share your thoughts on year end tax strategies below.
Jessica said:
I agree with all of the tax strategies, but one thing to keep in mind is to only buy those year end items that you know that you will use to grow your business or keep your business competative. Buying just to avoid taxes is not going to increase your bottom line in the long run & therefore not a fiscally responsible thing to do. For many years my thoughts were how bad it is to have to pay taxes at the end of the year. Then a few years ago my thinking changed, I began to think that if I owe taxes then I am making money. I am profitable and isn’t that the goal? So now I try to reduce income tax where it makes sense to do so, but I don’t stock up on inventory, (after all I’d have to count the darn stuff) or make speculative purchases. I only make purchases that are good deals or are definitely going to help to grow my business. I may have a few more of these at the end of the year because there are some good deals available that aren’t available at other times of the year, but in general I keep a list of things that I want to purchase at sometime in the future, put aside profit for those items and when the price is right I purchase regardless of whether it’s at the end of the year or not. I also find that by saving for some of those purchases that by the time I’m ready to buy them that something better or different that better suits my needs has come along. A perfect example of this happened recently when a software package that I had wanted for years went from the price 4-5 years ago of over $11k down to $3k. If I had purchased right away & then let the program sit because I wasn’t ready to devote enough time to that part of our business growth, I would’ve spent an extra $8k for nothing.
Moral of the story is that think twice about making year end purchases just because you are trying to avoid paying additional taxes. If all your other ducks are in a row, and you still have taxes to pay, then that just means you had a good year.
Morna said:
Jessica, thanks for adding your comments. You are definitely right that spending is only appropriate when you know it’s for the good of your business, not just to avoid taxes. And, our goal is to be profitable, so hope your bottom line on the far side of that ledger this year!