Do you ever feel like life is passing you by before you even realize it? Somehow, we’ve already made it to the last quarter of the year. Fall colors are in full bloom, temperatures are beginning to change (albeit slowly for some of us!), friends and family are starting to think about the holidays, and most business owners we know… well, they are hustling to hit goals before year-end!
We know you have many items to attend to and that adding another area to dive into could cause overwhelm. Don’t fret! We’re here to help you to make the most of these final months and prepare for the coming year with some tips and guidance to help you prep-ahead for tax time.
How to Prepare for the Last Tax Quarter of the Year
The last quarter of the year is an important time for any business owner, especially when it comes to taxes. It’s a good time to dot your ‘I-s’ and cross your ‘T-s’, by making sure you are maximizing deductions, minimizing your liabilities, and planning ahead for the next year. This is also where having an established relationship with your tax professional will serve you most. Rather than waiting until tax time, be proactive and create an end of year plan together.
- Review your income and expenses. The first step is to review your income and expenses for the year so far and estimate what they will be for the rest of the year.
Pro Tip: gather your financial statements, review your profit and loss statements and balance sheets so you can gain a better understanding of your company’s financial status. Also, we recommend having a system in place like QuickBooks to help you automate all of these areas for better ease when reconciling at the end of the year.
Below are common terms and areas to consider. You can view these in depth on our ‘End of Summer Business Check-Up’ blog:
- Balance Sheet Reconciliation
- Project Revenue and Expenses
- Organize Business Receipts
- Collect Past Due Invoices
This will help you determine your taxable income and your tax bracket. You can use this information to adjust your estimated tax payments, if needed, or to plan for any tax-saving strategies.
- It may be advisable to make any necessary business purchases. One of the most common tax-saving strategies is to make business purchases before the end of the year. This can include equipment, software, supplies, inventory, or anything else that is necessary and ordinary for your business. By making these purchases, you can deduct them as business expenses in the current year and reduce your taxable income.
Pro Tip: Be careful not to overdo it and buy things that you don’t really need or that won’t benefit your business in the long run.
- Upgrade your equipment. Depending on your overall financial picture, if there are equipment purchases or upgrades you’ve been considering, it may be advisable to make those investments before the turn of the year. This can include computers, phones, printers, machinery, or anything else that you use in your business. By upgrading equipment, you can take advantage of the Section 179 deduction, which may allow you to deduct the full cost of qualifying equipment in the year of purchase, up to a certain limit. You could also claim bonus depreciation, which allows you to deduct an additional percentage of the cost of qualifying equipment in the year of purchase.
Pro Tip: We recommend speaking with your accountant now. In most years, those decisions could be made later in the year, but with supply chain issues in recent years you will need to make equipment purchase decisions earlier in the year so that your vendors can deliver the item purchased. Remember, it is not enough to have paid for the equipment/improvement; it must be placed in service prior to year-end, meaning it must be available for use for its specifically assigned function prior to year-end.
- Consult your tax professional. Perhaps the most important thing you can do to prepare for the last tax quarter of the year is to consult your tax professional. Your tax professional can help you review your financial situation and advise you on the best tax-saving strategies for your business well before preparing your tax returns. Having an established relationship with your tax professional means that you have someone who knows your business well and can help you optimize your tax situation throughout the year. It also means that you have time to get out ahead and make any changes or adjustments before the end of the year, rather than scrambling at the last minute.
By following these tips, you can prepare for the last tax quarter of the year and possibly lower your tax liabilities. Remember, taxes are not something to be afraid of or avoid, but rather an opportunity to plan ahead and grow your business. And the sooner you review ahead and prepare for next year, the more freedom and ease you’ll have to enjoy the upcoming holiday season.
If you have any questions about your business check-up, reach out to our team. We are happy to help review your financials and discuss cost-saving options and tax incentives before the end of the year.