November has arrived and with it brings business owners a final opportunity to reduce taxable income for the current year. Strategic decisions about expenses, income recognition, retirement funding and charitable giving can lower your tax bill without changing your core operations. The following explains practical, compliance-friendly options available to you before year-end.
Accelerate legitimate business expenses
If you’re planning to purchase equipment, office supplies, software subscriptions, or conduct maintenance, moving those purchases into the current tax year can increase deductible expenses and reduce taxable income.
Be careful with prepaid expenses
Prepaying vendors or insurance premiums can sometimes shift deductions into the year you pay them, but tax rules limit when that’s allowed. Whether the expenses can be deducted when they’re paid versus when they’re incurred depends on how accounting rules are applied for cash-basis taxpayers opposed to accrual taxpayers. Confirm the accounting method for your business before prepaying large contracts.
Maximize retirement plan contributions
Retirement accounts are one of the most tax-efficient ways to lower taxable income. For many business owners, maximizing contributions to employer plans (401(k), SIMPLE 401(k)) or funding SEP and traditional IRAs reduces taxable income now while building retirement savings. Contribution limits change periodically. Be aware of the current annual limits and catch-up rules that may apply under recent updates. Increase payroll deferrals or make employer contributions before year-end where allowed.
Make charitable gifts before Decemer 31
Charitable donations made before year-end are deductible in the current year if you itemize. In some cases, your business may be eligible to claim a corporate deduction. Keep receipts and verify that the recipient is a qualified organization. Deduction limits can vary by taxpayer type and by the type of property donated. Ensure your donations are carefully documented and consult guidance about limits.
Document, document, document
Good recordkeeping is essential: invoices, cancelled checks, receipts, board minutes for proof of corporate decisions, and retirement plan contribution records will support your year-end positions if ever reviewed. Providing information to your accountant of transactions you’ve accelerated or deferred and the reasons for each will help in preparation of accurate returns.
Strategically plan with a trusted advisor
Accelerating expenses lowers income now but might reduce depreciation in a future year. Maxing out retirement plans is powerful but must be coordinated with payroll and plan rules. Before making big purchases or contracts, run scenarios with your CPA or tax advisor to quantify the net tax effect and ensure compliance.
Year-end planning is about purposeful timing and documentation. When done correctly, significant tax savings could be made to keep your business on solid financial footing.