December offers the last chance to employ basic strategies to improve your tax picture for 2015. Barbara Weltman, an SBA guest blogger and an attorney, offers these practical suggestions (details at http://tinyurl.com/nc2dy6x).
First, don’t wait another minute to schedule a meeting with your tax adviser to tailor the actions to your situation.
Many service businesses use the cash method of accounting and have flexibility in timing income and deductions near the end of the year.
- Defer income. Postpone the receipt of income until next year: If you’re a web designer and complete a project late in December, for example, don’t send an invoice until the end of the year so you’ll receive payment in 2016.
- Accelerate expenses. Pay what you can now so you can deduct it in 2015: Clear up outstanding bills and stock up on supplies. Consider taking a continuing education course so you can write off the cost this year. A prepaid expense rule limits what you can deduct now when prepaying multi-year costs, such as a three-year subscription.
If you report your income and expenses on the accrual method:
- Declare year-end bonuses for employees. You can deduct them in 2015 as long as you actually pay them by March 15, 2016 (does not apply to company owners).
- Authorize charitable contributions, which are also deductible in 2015 as long as they’re paid by March 15, 2016. This strategy only applies to C corporations.
If you own an S corporation that had a bad year, the deduction for your share of losses is limited to the extent you have “basis” in your stock and loans that you’ve made to the business. Ways to increase basis: Make new loans to your corporation and record the terms in the corporate books or restructure third-party loans that you’ve personally guaranteed so that you are jointly liable for the debt and not a mere guarantor.
Review your tax payments to date and try to get as close to the amount of your 2015 tax bill so you don’t overpay or underpay. The deadline for the fourth installment of estimated taxes for 2015 is Dec. 15, 2015, for C corporations reporting on a calendar year and Jan. 15, 2016, for owners reporting business income on their personal returns.
