The end of the year is the best time to kick your tax strategy into gear; so here are 10 tips for tax planning.
#1 Make sure your bookkeeping is current
Good bookkeeping is the key to your tax strategy. This is why it is so important to ensure your bookkeeping is up to date before year end. Current bookkeeping means that your books are up to date through the end of the last month or previous quarter.
#2 Check your vehicle’s mileage log
Your vehicle’s mileage log keeps track of how many miles have been used for business vs. personal reasons throughout the year. This is an important document that helps to support the deductions for mileage on your taxes.
#3 Make sure your salary is on track
An effective way to reduce the taxes you owe is to optimize the amount of money you take out of your business. That makes year end the best time to ensure that the salary you receive from your business is on track. If you discover that changes need to be made, you will still have some time left to make any necessary adjustments.
#4 Ensure your distributions are on track
Just as with your salary, it is equally important to make sure your distributions are optimal to reduce your tax payments.
#5 Make sure you are up to date on loan and interest payments
Another of our 10 tips for tax planning is to make sure all interest and loan payments are paid in accordance with what is stated on the loan document. This is especially important because it is common to take or make a loan to or from your business, or to have loans between you and your business.
If you find that you don’t have the appropriate loan documents, make sure you get those in place immediately.
#6 Make sure you have all necessary documentation for your deductions
Having proper documentation is the best way to make sure you get through an audit successfully. It is also a good way to increase the amount of deductions you can claim because it makes sure you don’t miss any possible deductions. This includes documentation for meals and entertainment, travel, vehicle and home office.
#7 Get reimbursement for all business expenses
Now is the time to submit an expense report for any business expenses that you paid for personally. It’s easy to forget about these expenses and that also makes it possible to miss out on the tax deduction too.
Also, if your business doesn’t have a current policy for reimbursement in place, this is a great time to get one.
#8 Add an entity
One of the greatest tools to reduce taxes is the addition of an entity. Knowing the correct entity to add and when to add it can save you as much as $10,000 a year on taxes. However, you won’t receive any tax savings without having the entity in place.
#9 Change the way an entity is taxed
It is not uncommon for an entity to be created as a part of a tax strategy knowing that once it reaches a certain income level, a change will need to be made in the way that entity is taxed. Not making the election at the best time or missing it all together can end up being a very costly mistake.
#10 Have your annual meeting and create your meeting minutes
The final of our 10 tips for tax planning is to ensure all your meeting minutes are in order to document the activity of your tax strategy. All the items listed should be discussed in your annual meeting. Always make your annual meeting and its accompanying minutes a part of your end of year planning.