Year-End Tax Planning: Businesses

While uncertainty remains about the timing of tax reform legislation, your business tax planning needs to move forward as we approach the end of 2017. As you consider the following tax planning moves for your business, keep in mind that most of them require you to be a taxpayer using the cash basis of reporting.

Project Your Business Income For Year 2017 Versus Year 2018:

If you can reduce your net income in year 2017 by accelerating expenses or deferring revenue, than that could save you on your tax bill this year. However, that may not be the best strategy if you are a growing company that anticipates higher income in year 2018.

In general, if you anticipate your 2018 business income will be similar to, or lower than, year 2017, you should consider deferring revenue into year 2018 and accelerating expenses into the current year. The result is a lower business net income in year 2017 and a lower tax liability. Tax reform proposals are pointing towards potential lower tax rates for year 2018, and that would magnify the potential advantage of this strategy.

If instead you anticipate significant increases to your business income in year 2018, than you may want to take the opposite approach. In other words, you may want to accelerate revenue into the current year and defer expenses into year 2018. This would allow you to have lower business income next year when you anticipate being in a higher tax bracket.

Business Tax Planning Moves:

Following are a few ways to reduce your 2017 taxable income, for businesses that don’t expect to see a significant increase in income in year 2018:

  • If your business plans to make large purchases in early 2018, consider making these expenditures before the end of the year. If these are capital expenditures, they may qualify for accelerated deduction under Section 179 or bonus depreciation alternatives. Section 179 allows a business to expense the full cost of qualified business property purchases in the current year, rather than depreciating the cost over several years. This may apply to new or used vehicle purchases, too, so keep that in mind if that type of purchase is in your plans.
  • Consider paying routine business expenditures a few weeks early so they can be deducted in year 2017. Some examples of these types of expenditures would include:
    • Utility bills such as telephone, electric, gas or water
    • Insurance bills
    • Employee payroll expenses
  • If you have accounts receivable due from clients, consider a request to ask them to delay payment until early 2018. As a cash basis taxpayer, that income is not taxable until your business receives the money.

On the other hand, a growing business projecting higher income in year 2018 may want to take the opposite approach in their tax planning. They would look at deferring expenditures into year 2018 where possible and accelerating payment of accounts receivable into year 2017. That would help to increase the 2017 net income when the business is in a lower tax bracket and decrease 2018 net income when the business moves into a higher tax bracket.

Think Before You Act:

Before you jump at the chance to lower your 2017 business income, be sure you won’t pay extra when it comes to year 2018. In addition to projecting how your business income changes year-to-year, you may need to consider potential tax reform changes that could take affect in year 2018.

If you have any questions or uncertainty on what steps to take, don’t hesitate to ask before you make any moves.