As the year draws to a close, now is the time to make proactive tax decisions that can reduce your tax liability, strengthen cash flow, and set your business up for success in the new year. Use this checklist to identify planning opportunities and talk with your advisor about what fits your situation.
1. Review your business structure Evaluate whether your current entity type (LLC, S corporation, C corporation) is still the best fit for tax efficiency, given possible changes to federal and state tax laws.
2. Accelerate or defer income and expenses Depending on your projected income, it may be beneficial to accelerate deductible expenses into this year or defer income into next year to manage taxable income.
3. Plan for expensing and depreciation Take advantage of 100% bonus depreciation or Section 179 expensing on qualified purchases placed in service before year-end. Timing matters for maximizing deductions.
4. Revisit compensation and distributions Review owner salaries, partner guaranteed payments, and shareholder distributions to ensure they are reasonable and tax-efficient.
5. Maximize available tax credits Explore credits such as R&D, work opportunity, or energy incentives that can directly reduce your tax liability.
6. Check estimated tax payments Confirm that your business has made appropriate quarterly estimated tax payments to avoid underpayment penalties.
7. Evaluate capital investments If you’re planning major equipment or technology purchases, assess whether it’s better to complete them before year-end or defer until next year.
8. Review state and local tax exposure Multi-state operations can trigger tax filing requirements in multiple states. Review nexus rules, apportionment, and available state-level incentives.
9. Assess retirement plan options Consider setting up or funding a retirement plan (e.g., SEP IRA, SIMPLE IRA, or 401(k)) to benefit both owners and employees while lowering taxable income.
10. Conduct a tax ‘health check’ Ensure documentation is complete for all major deductions, credits, and payroll items. Address any potential IRS or state compliance risks early.
Year-end tax planning is most effective when done before December 31. Discuss these strategies with your Boyum Barenscheer advisor to identify which actions make sense for your specific business goals.