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Maximize Your Business Deductions Before Year-End

October 14th 2023

As we head into the busiest and most profitable time of year for retailers, restaurants, and holiday-related companies, businesses of all types should start to assess where they are financially. 

That is, how is your business performing revenue-wise? Are you ahead of projections or behind? How about expenses? Has your cash outflow for costs tracked with what you expected, or have you spent more than you anticipated by this time in the year? How about headcount? Orders? Utilities? Shipping?

With three-quarters of the year behind us, it’s time to evaluate where you are with respect to where you wanted to be when you set goals back in January. Once you know where you stand, you can then strategize how to improve your financial position before the year is actually over.

Of course, we are not your accountant or legal advisor, so be certain to check with your accountant before you execute any of these potential tactics. Your state or county’s regulations may be different, and whether you use a cash or accrual-based system will also impact whether these ideas can work for you.

Invest in needed technology and equipment

If you’ve been considering upgrading your computer system or buying equipment that will make your business run more efficiently or smoothly and you have profits you can invest, before the end of the year might be a good time to buy them. By using available funds to pay for assets that will benefit your business long-term, you’ll improve the value of your company while reducing your short-term tax obligation.

Stock up for next year

Or, if you determine that your taxes owed will be higher than you’d like, one way to reduce your burden is by increasing your expenses. Just spending money frivolously is never good for business, but investing in materials you know you’ll need next year could be a good idea. 

Buying raw materials in advance that you know you’ll need later, such as to manufacture inventory or to keep your shelves filled, printer running smoothly, and employees productive, could be a smart money-saving tactic. 

Office supplies, software subscriptions, packing materials, and/or utility bills could fall into this category. 

Paying now for next year’s expenses is another potential move, such as association memberships, travel, or training and education fees. Check the refund policy closely, however, in case plans change or people leave and you no longer need those memberships or travel arrangements.

Make charitable gifts

Another way to reduce your taxes is by giving more money away to charity. If you’ve been considering making a cash or in-kind gift to an organization on behalf of your business, sending the check before year-end can help reduce your tax bill.

Fund your retirement plan

If your business offers all employees a retirement plan, such as a 401(k) or simplified employee pension (SEP), you could consider paying out a bonus into those accounts. It’s likely all employees need to receive compensation, whether they have a retirement account through your business, however, so definitely check on how to handle that before you start making deposits.

Delay billing

Another potential strategy – again, check with your accountant – is to push billing for products or services you’ve sold in late 2023 into 2024, so as to reduce your revenue for this year. This is generally legitimate if you will continue to service the client into the new year. If all of your work will conclude in 2023, however, you should bill in the year in which the work was done.

However, you won’t count the income this year unless your client also makes payment this year; if they opt to pay in 2024, the revenue gets credited to next year’s books.

This is risky, however, because if your clients’ fortunes change in the next few months, there’s no guarantee they’ll be able to pay in January. Weigh the risk of never getting paid against getting paid now but having to pay higher taxes on that revenue.

Again, please check with your accountant before implementing any of these tax-saving measures, but also explore what else you might do to hold onto more of your hard-earned revenue. Bench Accounting has a handy list of common business deductions that you should check to ensure you’re claiming all the deductions to which you’re entitled.

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