It’s about that time.
For some of you, this is the first year you will file tax returns for your business. You may be a sole proprietorship, filing on Schedule C, or you may be a corporate entity. For most of you, we’ve already discussed some year-end tax planning tips, but I wanted to take a moment and revisit them here.
Since all of you are cash basis taxpayers, please make sure to pay any bills by 12/31/16 that you would normally pay right after the new year. For instance, if you have a cell phone bill that is due on 1/3/17, go ahead and make that payment on or before 12/31. If you have an insurance bill that is due on 1/15/17, go ahead and make that payment on or before 12/31.
WARNING – DO NOT WRITE CHECKS OR SCHEDULE PAYMENTS THAT MAKE YOUR CASH BALANCE A NEGATIVE NUMBER, EVEN ON PAPER. SINCE YOU’RE ON THE CASH BASIS, ANYTHING THAT DRIVES YOUR ACCOUNT BALANCE INTO THE NEGATIVE WILL NOT BE DEDUCTIBLE.
If your business requires some new equipment, such as computers/laptops, printers, office furniture, or machinery, and you’re profitable for the year, those purchases are a great way to reduce profit. Keep in mind, I said “if your business requires new equipment.”
Don’t buy something just to buy it. My advice is always “If you were planning to purchase this equipment in the first few weeks of 2017, then go ahead and put those items in service now.”
WARNING – DO NOT ORDER A NEW MACBOOK ON 12/5 THAT YOU WON’T RECEIVE UNTIL 1/15/17 AND TRY TO DEDUCT IT THIS YEAR. THE ASSET MUST BE IN SERVICE, WHICH MEANS YOU MUST BE USING IT IN YOUR BUSINESS AS OF 12/31.
For some of you, mileage is a big tax deduction. As IRS gets more aggressive in their “paper audits,” we see that deduction challenged more and more often. Please, please, please keep a mileage log, either on paper or with one of the 1,567 apps that track mileage for you.
It’s imperative, because, without a log that looks as though it was kept all year, IRS will disallow the deduction and not look back.
WARNING – MANY OF YOU WILL THINK YOU CAN BUILD THE MILEAGE LOG IF IRS ASKS FOR IT. PLEASE DO NOT LURE YOURSELF INTO THAT FRAME OF THOUGHT. EVERYONE WHO LOSES THE DEDUCTION THOUGHT THE SAME THING. PLEASE TRACK YOUR MILEAGE NOW.
There are more valid tips than I have time to write here, and some of you have discussed other things with me as the year has come to an end…bonuses, timing of collections of cash as the holidays approach, things like that. If you have questions on anything I’ve mentioned here, or anything else that we have discussed, let’s talk about them in the coming weeks. My goal is for you to be profitable, and at the same time pay as little tax as allowed under the law.
Here’s to a profitable 2016!
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