Year-end strategies to lower 2019 tax liability for business owners

keep more of your money handwritten on post-it

Summer has come and gone, with autumn in full swing as the year draws to a close. Did your business exceed growth targets, struggle with unexpected headwinds or fall somewhere in between? However you answered that question, the good news is that there’s still time to reduce 2019 tax liability.

If you’ve had a particularly good year, evaluating your tax situation can be especially important. That’s because you may be able to direct some of the additional revenue to create long-term benefit for your company, avoiding excess taxes in the process. And if you’re like most business owners, you’d much rather invest the money in your company and your future than fork it over as a bonus to Uncle Sam.

But time is of the essence. While there are some tax-savvy moves you can make after the first of the year, most depend on understanding your tax picture in time to formulate a strategic response before 2020. The steps you take in November and December can determine whether you keep the extra money or owe much of it in 2019 taxes.

Start by reviewing the quarterly tax payments you’ve made so far. Those amounts were based on your best guess at the year’s income (assuming the business uses the cash basis of accounting). If you guessed wrong, you could be hit with additional taxes. With year-end in your sights, you can avoid owing more than you expected by tailoring the company’s taxable revenue to match your previous estimates. Effective tactics for trimming taxable income include:

Making capital expenditures

Is it time for a vehicle replacement, property purchase or new computers all around? Buying before the end of the year might make sense, so you can deduct the costs from 2019 revenue. Don’t go on a spending spree unless the business has a legitimate need, of course. If it does and the money is there, timing your purchases well can yield valuable tax benefits.

Boosting retirement contributions

This is one of the few methods for reducing taxable income that you can utilize after the fact. Go ahead and enter the deduction for Q4 once you’ve figured out how much you want to contribute, which may not be until after year-end. You’ll still get credit for the deduction as of December 31 but the money doesn’t have to actually leave company coffers until April 15 or you file your tax return, whichever comes first.

Prepaying expenses

Recurring expenses like rent, utilities, lease payments and annual subscriptions can be prepaid to reduce current year taxable income. Accounts payable represent another opportunity for early payment. Even payroll may be an option if the pay period straddles both years. Moving these expenses into the last few days of 2019 can help minimize income this year while giving you a head start on the bills that will come due later.

Pulling out the plastic

If cashflow limits capital investment or prepayment options, it may be wise to put some of these costs on a credit card so you can still take the deduction for 2019. Deferring the outlay for a month or so could allow you to reduce taxable income this way despite cashflow concerns. Just be certain that the income you’re relying on to enable credit card payment will arrive as expected, or you’ll risk a serious cash crunch. 

Knowing how the numbers look before the end of the year allows you to fine tune your taxable income and associated tax. Don’t miss the opportunity to invest money in your business rather than writing a fat check for taxes due next April. Talk with your accountant today or reach out to the tax advisors at HBP to find out exactly where you stand.