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Maximize Tax Savings by Timing Income and Expenses

Year End Tax Planning to Save on Business Taxes


Timing Year End Business Tax Deductions and Profits for Maximum Tax Savings

The basic principle of taxes is to pay as little tax as possible, legitimately. You do this by finding and using the provisions of the Internal Revenue Code and realizing expenses and profits when it will result in the lowest taxes. When you take a deduction or realize income is important in saving you taxes; that is, consider which year you want to take the deduction or realize the income.

These suggestions are provided as considerations, not tax advice. Check with your CPA or tax adviser before implementing them. That having been said, you may be able to save on taxes with one or more of these timing suggestions:

Timing Income
As you get to the end of your business tax year, you may have the option of taking income in this year or next year. If you can take income in the year of the lower profit, you may be able to minimize your taxes.
For example, if this year you will have a loss, but you know you will have a profit next year, you may want to encourage customers to pay you this year when your profits will be lower. If you think your profit will be lower next year, try to move payments from customers into next year. This is tricky, since you don't really know what will happen next year, but it is worth a discussion with your tax adviser.

Timing Expenses
When considering whether to take a deduction for an expense this year or next year, here are three points to take into account:

  • Take the deduction the year when your profit is higher. This will result in lower profits in that year.
  • Take the deduction in the year when the deduction amount is higher. Some deductions change from year to year. Learning about these changes can save you money by allowing you to take the deduction when it is higher.
  • Take the deduction in the year when the tax rates are higher. If you know that business tax rates will increase next year, take the deductions next year to minimize your taxable income in that year.

Of course, these timing suggestions are only guesses, and you may find that some of these devises may work against each other. In general, though, the principle of timing income and expense deductions, if done thoughtfully and with the assistance of your tax adviser, should lower your business taxes.

Disclaimer: This article, and the information on this Guide Site, is intended for general information only. The author is not a CPA, tax attorney, or Enrolled Agent. Consult with your tax professional for information relating to your specific situation.

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