Plan Early: Last Minute Tricks to Make the Most of Your 2015 Tax Return
I know what you’re thinking, “Justin, I was just getting my kids ready for the start of school and now I’m already lighting the Menorah.” We know how Q4 goes for small businesses…FAST! That’s why we here at Universal Bookkeeper wanted to give you some helpful end of year strategies to maximize your 2015 tax return.
It is important to note, before we get into strategy, two key points.
- All strategies discussed only pertain to the Cash-Basis accounting system and do not apply to the Accrual accounting system.
- A $1 deduction DOES NOT equal $1 in taxes saved. When we talk about incurring expenses in order to increase your deduction, we DO NOT mean spend money that you normally would not spend. What we mean is to pay expected expenses early in order to include the expected expenses as this year’s deduction instead of next year’s.
Deferment of Income
If you expect to be in the same or lower tax bracket next year, then deferring as much income as possible to the next year will help minimize your gains and overall taxable income. If you know that you will be in a lower tax bracket, you will actually save the money that would have been taxed extra this year by deferring until next year.
- If it’s reasonable, wait to launch a big project or new line until next year so that income doesn’t add to your current taxes.
- If it’s reasonable, wait to send your invoices until next year. If you operate on the Cash-Basis system, you won’t be taxed for jobs/sales that you have not been paid for.
Acceleration of Income
Why wait when you can accelerate it? This applies to those who expect to be in the same or a lower tax bracket next year. If you have expenses that you know you will have to pay in early 2016, put them on a credit card and write them off as deductibles for 2015. If you know you have to pay it anyway, why not use your increased deductible to make your credit card payment?
- Make your 2016 charitable contributions now to increase your deductible
- Prepay your deductible interest
- Pay your estimated tax installments in December instead of January
- Accelerate capital losses to balance out or surpass your gains in 2015
- Pay expenses with checks and mail them just before the end of the year. Even if the check hasn’t been cashed, as long as you are operating on the Cash-Basis system, you can write the expense off as soon as the check has been mailed.
Achieving a NOL
Following these strategies may lead to the creation or the addition to a Net Operating Loss or NOL. This occurs when the overall expenses for the business outweighs the income of the business. This gem of a deduction can be carried back up to 2 years in order to regain taxes paid in earlier years or carried forward for up to 20 years.
The same applies on the other end. If your business is kicking ass and you expect to be in a higher tax bracket next year, then you will want to apply the opposite strategies. Defer all of your deductible expenses onto next year so that they can cushion the larger tax that your business will incur. As far as your income, it’s the same as usual, get your money ASAP! Gain as much as you can while that income is still being taxed at this lower rate.
Work With Expert Accountants
Universal Bookkeeper has a plethora of strategies and tricks of the trade to make the most of your company’s gains and losses. Allow us to do the dirty of work of saving you money by connecting with us here, while you focus on continuing to make waves in your own industry.