Year-End Tax Planning: More Preparation Means Fewer Holiday Seasons Spent Working
Another holiday season is upon us. Family gatherings, office parties, and completing gift lists will take up a lot of the coming weeks. This year, begin with a gift to yourself: See your CPA or tax advisor in the next few weeks for yourself and your business. If you wind up saving more tax dollars, you could use the money to buy more gifts, or if you put away the tax savings, you might just reach your financial goals sooner, allowing for a more imminent—or lucrative—retirement with a stronger cash flow.
Most executives and business owners are too busy during the holiday season to take the time to find some easy cash flow by tax planning before December 31. Rather, most tax planning looks like this:
- Wait until late March following the close of a tax year to get started
- Quickly throw together your tax information for your CPA
- Hope everything turns out OK
How many times have you been surprised when your accountant calls you April 12 informing you of a large tax liability due in three days? This is not tax planning.
Now imagine you set up a time to review your income and expenses for you and your business before the end of the year. You wind up with a tax projection; a very close estimate of what your return will look like when it is completed. What’s more, you get to review the latest tax law changes that may have a dramatic effect on your tax bill. And the best part: no surprises on April 15.
For your personal return, you may decide to accelerate or postpone that bonus. Make sure you have maximized your 401(k) contribution. You might have the opportunity to accelerate deductions, such as charitable giving, harvesting some investment losses against your gains, paying your state estimated tax payments early, or converting your traditional IRA to a Roth. These ideas and many others could wind up saving you tens of thousands of dollars.
If you have a business, you might decide to give bonuses early, set up a more advantageous retirement plan, or buy that equipment now instead of January. You don’t have the cash flow? You can finance it with a bank loan—or with even credit cards—and pay it off with cash flow next year but still get the tax break this year. You could save hundreds of thousands of dollars using the current section 179 deduction (up to $510,000) for equipment bought and placed into service this year.
You can take a few hours doing this over the next month, or you could just enjoy the holiday season. But if you don’t take time to tax plan, you could just be working during a lot more holiday seasons in the future than you would like.
Al Zdenek is a speaker, wealth advisor, CEO and best-selling author of Master Your Cash Flow: The Key To Grow And Retain Wealth with ForbesBooks. Learn more at AlZdenek.com.