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While tax planning is best done year round, there are a few last minute strategies you can use to lower your year’s tax bill. Here are six year-end tax strategies to consider:
- Postpone invoices. By waiting until early 2019 to send invoices you can defer income to next year, this is helpful for businesses using the cash method of accounting. Accrual basis businesses can defer the recognition of some advance payments for products to be delivered or services to be provided next year.
- Prepay expenses. Many expenses can be deducted up to 12 months in advance. Prepaying certain expenses such as lease payments, insurance premiums, utility bills, office supplies, and taxes before the end of the year can reduce 2018 taxes for cash basis businesses.
- Buy equipment. Take advantage of the Tax Cuts and Jobs Act (TCJA), Section 179 expensing allows for 100% bonus depreciation so that you can deduct the full cost of qualifying assets including equipment. TCJA qualifies both new and used equipment for the deduction. To use this deduction in 2018, the assets must be in use as well as purchased by year end.
- Use credit cards. Using your business credit card might be a good option if you would like to pay expenses or buy equipment by the end of the year but don’t have the cash. Usually, expenses paid by credit card are deductible when charged, even if the credit card isn’t paid off until the next year.
- Contribute to retirement plans. For those who are self-employed or own a pass through business such as a partnership, limited liability company, or S corporation, one of the best ways to reduce your 2018 tax bill is to increase deductible contributions to retirement plans. Most of these contributions must be made by year-end to benefit, but certain plans, for example, SEP IRAs, allow 2018 contributions to be made up to the tax return date, including extensions.
- Qualify for the pass through deduction. Sole proprietorships and pass-through entities may qualify for the new pass-through deduction. This deduction is up to 20% of qualified business income. Though, if your taxable income exceeds $157,000, or $315,000 for joint filers, certain limitations apply that reduce, and in some cases eliminate, the deduction. Reducing your income below the threshold is the best way to avoid these limitations, you can reduce your income by taking steps such as increasing retirement plan contributions.
These strategies are all subject to limitations and restrictions beyond what is detailed in this list. Contact us, and we can help you look into the best tax moves for your company. Call us at 818-334-8623 or click here, and we will contact you.