Another year is coming to a close, and as a business owner, it’s a time when you need to reflect on the past year and start putting the pieces in place for a prosperous coming year.
How can you do this?
Year-end planning. Setting aside time now – well before the final days of the year – for planning will set the pace for the year ahead. We recommend you start your planning by fully assessing your business goals.
Assess Where You’re At and Look Toward the Future
Q4 is the time to assess your business and pinpoint two to three changes to make for the year ahead. Statistics show that 71% of the fastest-growing businesses didn’t reach success by chance – they had a plan.
Here are some things to look at for the upcoming year:
- Hire and delegate tasks to make the business less reliant on you
- Take a look at your key processes and identify areas to improve upon
- Review and adopt new technologies to make your business more efficient
- Expand your offerings or reduce non-profitable offers and focus on better opportunities
- Update your marketing strategy to continue generating leads and making sales this coming year
Your business’s goals are unique, and it’s crucial to focus on changes that will streamline operations, grow revenue, or position your company to meet its goals. Small, incremental
changes may have an initial upfront investment attached, but they’ll more than pay for themselves over the long term when they’re the right changes.
And some of the changes you make may be tax advantageous, too.
Develop a Tax Plan with Your Future in Mind
Tax planning is a crucial part of business because you shouldn’t find yourself paying more to the IRS than is legally required. Instead, you want to keep as much of your money as possible to invest it back into your business and your team.
You might be tempted to take every deduction possible, but tax planning is not as simple as writing off each purchase.
For example, often it makes sense to defer some income and/or expedite expenses. However, for some businesses it makes more sense to do the opposite. The value of your money needs to be considered when tax planning, and this is one area where working with an accountant can make all the difference.
Take Advantage of Credits and Tax Breaks
Your accountant knows which tax credits and breaks are available – it’s their job, not yours. However, there are some credits and tax breaks that many businesses can leverage but not enough businesses are aware of. Annually, innovative companies can take advantage of:
- Energy credits: You may be able to take advantage of tax credits for energy-efficient offices or equipment purchases.
- R&D credits: Your business may be able to claim R&D credits that are unique to your industry and help you recoup the costs of certain investments you’ve made.
- Captive insurance: In a captive insurance arrangement, a business forms its own insurance company (a “captive”) to insure its own risks. Captive insurance can allow a business to deduct premiums paid to the captive as a business expense, just like it would for premiums paid to a third-party insurance provider. Your accountant will need to verify that you meet certain risk-distribution standards.
- Cost segregation study: You can potentially defer income taxes by accelerating depreciation, which boosts cash flow for real estate that has been built, expanded, purchased, or remodeled.
A lot of nuances go into tax planning, and without a full review of your business, we don’t know which deductions or credits you qualify for. Working closely with an accountant will help you plan your taxes and maximize your cash flow.
Once you’ve taken advantage of tax credits and breaks, it’s time to look over your discretionary planning.
Don’t Overlook Discretionary Planning
Discretionary planning also plays an important role in your year-end planning. Through retirement contributions and bonuses, you can help retain key employees while receiving tax benefits.
After all, employer contributions are tax deductible. Contributing additional money to your employee retirement plans will allow you to maximize this benefit and give your team an incentive to stay on board.
Rewarding your team with bonuses also provides benefits for both you and your employees. Employee bonuses allow you to thank your team for their hard work and contribution to the success of your business, and from a tax planning perspective, they can also typically be deducted if made before March 15th of the following year for calendar year businesses (with some exceptions, such as bonuses to ownership and their family members, which need to be paid by the end of the fiscal year).
While discretionary planning certainly has its place in year-end planning, it’s something that must be done carefully and strategically. Before you focus on this step, make sure that you have enough money put away for next year just in case things don’t go according to plan.
Give Back Through Charitable Contributions
The end of the year is a great time to make charitable contributions. If you take a strategic approach, you can support the causes you’re most passionate about and receive tax benefits in the process.
For example, you can
- Make qualified charitable contributions through retirement accounts
- Avoid capital gains taxes by donating appreciated non-cash assets
- Make contributions via a donor-advised fund account before the end of the year
Generally, you can deduct up to 60% of your adjusted gross income through charitable deductions.
There may also be other strategies you can leverage to maximize the benefits of charitable contributions, so consider working with an advisor for this step.
Make Year-End Planning a Priority for a Brighter Future
As 2024 comes to a close, year-end planning should be at the top of your to-do list. Take the time to reflect on everything that’s transpired over the last 12 months and all the progress you’ve made.
Once you’ve reflected, set your sights on the future and plan for the year ahead. Identify areas you’d like to change and improve. These efforts will help you prepare for the future and build the foundation of long-term success.
If you’re not working with an accountant already, it’s an investment that will repay itself many times over with deductions and credits that you may not know are available. Year-end planning is a key to success for many businesses.
To learn more about year-end planning or to schedule an appointment, click here.