Don’t Wait Until Tax Season: Year-End Tax Planning Moves to Consider Now
The end of the year is quickly approaching, making now a great time to review your finances and prepare for the upcoming tax season. Whether you’re a business or an individual, tax planning before the end of the calendar year can identify potential tax savings, avoid surprises, and help you make informed financial decisions that meaningfully impact your return.
Year-End Tax Planning for Businesses
As a business owner, tax planning before year-end offers several potential benefits. First, it offers an opportunity to review the year’s financial activity. Businesses can use Q4 to evaluate the timing of income, such as contract fulfillment or large sales. In some cases, accelerating income when the next tax year is expected to be less favorable may help reduce the business’s overall tax liability.
Business owners may also consider the timing of expenses. Cash-basis businesses may be able to accelerate certain deductions by paying expenses before year-end. In contrast, accrual-basis businesses should review expenses for goods or services received before year-end that may be deductible even if payment is made the following year. However, accrual deductions have additional rules and exceptions, so it is important to discuss these items with your tax professional.
Additionally, both cash- and accrual-basis businesses may consider purchasing needed depreciable assets before year-end to take advantage of available depreciation deductions. Reviewing expected income, year-end expenses, and upcoming transactions can help determine whether accelerating or deferring certain items could result in a more favorable tax position.
Year-End Tax Planning for Individuals
Individuals can also benefit from reviewing their financial and tax situation before the end of the year. Consider reviewing retirement contributions, charitable giving, investment gains and losses, and federal and state income tax withholding to identify potential planning opportunities. Individuals with investments may want to evaluate realized capital gains and losses and determine whether recognizing additional gains or losses before year-end could improve their overall tax position.
Retirement planning may also offer opportunities, such as maximizing eligible retirement contributions or considering a Roth conversion based on current and expected future income. Reviewing these items before the year closes can help identify potential tax savings, ensure you’ve paid enough tax throughout the year, and reduce potential surprises when it’s time to file your return.
Looking Ahead
The end of the year presents an important opportunity to be proactive rather than waiting until tax season to evaluate your tax situation. Whether you are a business owner or an individual taxpayer, thoughtful year-end planning can help you make informed decisions and better prepare for the year ahead. Reach out to your tax professional before year-end to discuss which planning opportunities may be beneficial for your specific circumstances.
