As the year winds down, you have a golden opportunity to take charge of your finances with smart year end tax planning strategies. Tax planning isn’t about checking boxes - it's about maximizing tax savings, reducing liabilities, and setting up your business for a successful new year. In this guide, we’ll walk you through actionable steps that will make the coming tax season more rewarding.
Why does year-end tax planning matter?
Taxes can be one of the largest, and most daunting expenses that a small business owner has to deal with. Tax planning helps you to take control of your finances and your tax liability in a way that makes it more sustainable year after year. By reviewing your financial position, and putting in place a few smart strategies before the calendar flips, you can:
Reduce income tax through allowable deductions.
Leverage tax credits to lower your total bill.
Prepare for changes to tax laws, like those introduced by the Inflation Reduction Act.
Improve your overall cash flow and invest it into business growth.
Review current financial activities and make adjustments according to tax laws.
Be done with barely surviving every tax season, and begin to take control over what stays in your pocket for future wealth creation.
Start here: Organize your financial records
Tax planning can be broken down into four actionable steps, but the first one is always to organize your financial records in a way that will lead to accurate financial information. Without this foundational step, you cannot take advantage of tax deductions or tax credits.
If you don’t know how to do this or don’t have the time for it, you should get some help. Currently, there are a number of accounting firms that offer competitive packages for small business owners, like Hall Accounting Company, that offer their SBO clients the automation of day-to-day financial transactions by using powerful software like QuickBooks.
By partnering with an accounting firm, you can have your daily accounting tasks taken care of, and at the same time take advantage of their scrupulous oversight of your transactions.
An accounting firm will advise you proactively on how you can conduct your business activities in a way that will help you benefit when tax season arrives. They will also do the checks and balances, providing you with not only proactive financial advice but also the end product of all financial activity - accurate financial reports. They will also discuss the implications of those final reports with you, and this will be the continual source for any tax planning strategies you put in place. The insight you gain from working with an accounting partner is invaluable. Having a highly skilled, and professional CPA and tax advisor involved in your business affairs from a daily accounting perspective, and as an advisory partner can catapult your financial goals forward faster than if you go it alone.
If you are going to go it alone, then at the very least you should invest in a subscription to the likes of QuickBooks or Xero (if you haven’t already done so). A platform that pulls all your financial transactions together in one place is no longer optional - it’s a necessity for running your business efficiently. Then, concentrate on the following:
Income and Expenditure
Firstly, check that all income streams are accounted for. Your taxable income is calculated as the total income your business earns minus eligible tax deductions. Every dollar of income you report is subject to scrutiny, and every eligible expense you fail to record is a missed opportunity to lower your tax liability.
For pass-through entities like sole proprietorships, partnerships, and S corporations, accurate income reporting directly affects your eligibility for the Qualified Business Income (QBI) deduction. This deduction allows you to reduce taxable income by up to 20%, provided your records clearly separate business income from personal or non-business income.
Failing to report all income accurately—or worse, overreporting deductions—can raise red flags with tax authorities, increasing your risk of audits. Again, this is where a tax professional can help you avoid these costly mistakes. Get ahead of these matters by actively planning strategies so you can get all the tax benefits available to you in a tax year.
Payroll Records
Apart from income and expenditure, payroll is another area that can greatly affect income taxes. Not only do you have to accurately record this as a business expense but you are responsible for withholding taxes on behalf of your employees. Payroll is the most sensitive of all your business processes because it affects the finances of your employees, and your reputation as a good employer.
The IRS may impose penalties and interest on unpaid employee taxes. Even small mistakes, such as misclassifying wages or calculating withholdings incorrectly, can accumulate into substantial liabilities. Overpayment on the other hand will eat into your cash flow and limit the amount of money available for operational activities.
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Need help with your day-to-day accounting and payroll? Then take the first step to a simpler, and easier accounting process by enlisting the help of an accounting partner. Hall Accounting Company works with SBOs, reducing tax liability in three ways, namely, day-to-day accounting, payroll, and taxation.
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Maximise tax deductions and credits
Next, gather information on all the tax deductions and tax credits that you can find. A tax deduction lowers your taxable income, the amount of income on which your taxes are calculated. A tax credit directly reduces the amount of taxes you owe, dollar-for-dollar. Unlike deductions, which lower taxable income, credits lower your tax bill directly, making them more impactful. Here are some examples of deductions and credits you should include in your tax planning strategy:
Deductions:
Business operating expenses (e.g., supplies, rent, utilities).
Depreciation of assets under Section 179 or bonus depreciation.
Home office deduction for those who work from home.
Employee benefits like health insurance and retirement contributions.
Credits:
Research and Development (R&D) Tax Credit for innovation.
Work Opportunity Tax Credit (WOTC) for hiring individuals from targeted groups.
Clean Energy Tax Credits for adopting renewable or energy-efficient systems.
Allowable deductions and tax credits can be very effective in providing you with tax breaks. However, they do require a good understanding of tax law. How you claim them, why you claim them, and if you’re allowed to claim them, are critical questions to answer before you make any deductions or credits a part of your long-term tax planning strategy.
Optimize your business structure for tax efficiency
The type of business entity you choose does have an effect on the running of your business, taxes, liability, and overall financial strategy. Whether you’re a sole proprietor, running a partnership, or have incorporated, each structure comes with distinct tax implications and opportunities. If your current structure isn’t working for you, it may be time to reevaluate it.
Here is a quick overview of some of the benefits and downfalls of common business structures.
Entity | Tax Implications | Best For | Tax Planning Considerations |
Business income is reported on a personal tax return and is subject to self-employment taxes. | Freelancers, consultants, or small-scale businesses | No separation of personal and business liability, and no ability to leverage tax advantages like QBI deduction. | |
Partnership | Treated as a pass-through entity: income, deductions, and credits are passed to the partners and reported on a personal tax return. Partners are subject to self-employment taxes. | Businesses with multiple owners who want a simple structure. | Income distribution affects the partner’s personal tax bracket, and it requires profit sharing and liability agreements. |
Limited Liability Company (LLC) | Treated as a pass-through entity by default. Option to select taxation as an S-corp or C-corp. | Small to medium-sized businesses seeking limited protection without corporate complexity. | Eligible for the 20% QBI deduction. Flexibility to adapt taxation types as business needs evolve. |
S-corp | Treated as a pass-through entity, but avoiding double taxation. | Profitable businesses with modest income levels seeking to minimize self-employment taxes. | Stricter compliance and administration is required. Able to pay a salary to the owner and thereby reduce self-employment taxes. |
A traditional corporation with separate taxation for the business and owners. | Business planning to heavily reinvest profits and attract investors | Deductions for expenses like health insurance and retirement plans, and the potential to reduce taxes through reinvestment. |
If you need help with this, a certified public accountant has the in-depth knowledge and foresight needed to understand the short, medium, and long-term implications of your business structure.
They can pull all the elements of your financial processes together, supporting the business structure that makes the most sense for your financial goals and objectives.
This kind of keen insight can take years to acquire, so if you can find an accounting professional who excels in this, it will be one of the best decisions you make for your business.
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The highly skilled and experienced team at Hall Accounting Company are ready to partner with you to create tax planning strategies that are smart, and forward-thinking. Call us today and let’s put these tax planning strategies into action.
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Smart timing: Defer income or accelerate expenses
One of the simplest and yet most effective year end tax planning strategies is to carefully manage the timing of your income and expenses. The approach can help you minimize your tax liability for a tax year, keeping money in the business for growth and expansion opportunities.
Deferring income
Deferring income involves postponing the recognition of business revenue until the next tax year. For example, as a service business, you can consider postponing invoices for work completed in the last month of a financial year and issuing them in the first month of the new financial year. This will reduce your taxable income.
If you’re a retailer or manufacturer, you can negotiate the payment for a large order until the start of the next year. Product based businesses can start slowing down their promotions and discounts towards year end, and then ramp them up at the start of the new year. Use this strategy when you’ve had a particularly profitable year, and you want to hold a portion of your income to prevent going into a higher tax bracket.
Accelerating expenses
Accelerating expenses involves making payments for business costs that you would typically incur in the following year but paying for them now to claim deductions in the current year.
For example, you can prepay your lease expenses for the first few months of the new financial year so you can claim them in the current tax year. You could also stock up on important equipment or supplies that are needed early in the new year, and pay for it in the current year.
There are many more ways to defer income and accelerate expenses, but those are a topic for another time. What you should know right now is that there are these avenues available to every small business owner to lighten the load of your tax bill. Getting started early, and then putting your strategies in place incrementally is what ensures long-term success.
Set Yourself Up for Success in the New Year
Year-end tax planning is about more than just saving money—it’s about positioning your business for long-term success. By organizing records, leveraging deductions and credits, and working with a trusted advisor, you can reduce your tax liability and build a stronger financial foundation.
Ready to Take Action?
Don’t wait until the last minute to tackle your taxes. Contact Hall Accounting Company today for a free consultation and start the new year with confidence that you can do the things you love, while we take care of your financial strategies.