Accountant Juan Llantin offers year-end planning advice for businesses looking to make strong financial decisions now that will help reduce taxes later.
You probably put plenty of effort into winning new clients, increasing income, and reducing costs, but there’s another area that can directly impact your business capital that often gets overlooked.
Minimizing tax liability is one of the most significant things you can do to affect the bottom line of your business. Unfortunately, too many business owners wait until tax season to start looking for ways to reduce their taxes.
Most of the steps you can take to minimize taxes should be done before year-end. We talked with Juan Llantin, an accountant in the FINSYNC Network, for the most important steps you can take now to reduce your taxes.
Keep Good Records
When it comes to taxes, the most important factor is knowing your business expenses and income. This comes through strong record keeping.
According to Juan, “About half of the businesses we work with don’t keep records. At year-end they run into problems because they don’t have the records necessary to find possible deductions.”
It’s important to regularly monitor your financial statements, identify income sources and keep track of your expenses so you have a complete record of your business to share with your accountant. If you plan on deducting your vehicles, you need to keep records for fuel, mileage, and every associated cost.
Your financial information should tell the story of your business in a way that gets your accountant up to speed and helps them identify possible tax exemptions. Work with your accountant to make sure you’re keeping records throughout the year, and maintain them in a way that makes it clear what expenses are and what the reasoning behind them was.
“Don’t wait until the end of the year to start tracking expenses,” says Juan.
Validate All of Your Information
Beyond helping you identify potential deductions, keeping strong records helps you validate those deductions. If the IRS requests validation of specific expenses, the burden of proof is on you and it could end up costing your business.
“Most of the businesses we talk to try to deduct expenses that they can’t validate,” says Juan, “If we take those deductions and are then in a situation where you’re audited by the IRS, you will end up with the burden and will need to pay.”
Look for Potential Deductions
Your accountant does not work in your business every day. This can make it difficult for them to identify potential deductions based on activities or expenses throughout the year.
Help your accountant learn about your business so they can help make deduction decisions for you. If possible, work with an accountant that has experience in your area and industry. Some deductions are industry or location specific.
Here are a few ways you can save on deductions.
- Open a 401(k)
A 401(k) or IRA is a great way to increase employee loyalty while saving money on taxes. A SIMPLE IRA is a strong option for owners of small businesses looking to provide retirement benefits for employees and for themselves. They are generally less expensive and less complicated than a 401(k). Whatever plan you choose, it must be open before December 31st to save on this year’s taxes.
- Donate to Charity
Donations to charity are an easy way to generate deductions. Before donating, check if the organization you are donating to is on the IRS donation list to make sure you can deduct those expenses.
- Defer Income or Accelerate Expenses
The end of the year is a good time to manage your cash flow in a way that maximizes your tax savings. Deferring income to the following year or making vendor payments before year-end can impact your annual income and help improve your tax liability.
- Accountable Plan
An accountable plan helps you reimburse employees for business expenses which aren’t counted as income. This IRS regulated plan allows you to take a tax write-off from these expenses. In addition, you can save money on federal taxes through these reimbursements.
How FINSYNC Helps with End-of-Year Planning
In addition to saving money by limiting your tax liability, you should also look to save money on the preparation side. Working with an accountant, bookkeeper, and good accounting software can make your record keeping much more efficient and ensure you’re in the best position to reduce your taxes.
FINSYNC is an all-in-one bookkeeping, payroll, and cash management solution that makes it easy to manage cash flow, track expenses, and produce clear reports.
According to Juan, “The best thing about FINSYNC is the reporting. We can track everything in there and ensure all our client’s information is up-to-date. It’s the best tool on the market to keep customers updated on all of their financial information. If you have your books updated, filing your taxes is much quicker and easier.”
If you’re interested in learning more about reducing your taxes or how an accountant can use FINSYNC to improve year-end planning, connect to FINSYNC’s Network.