End-of-Year Tax Checklist for Small Business Owners

You may still be able to cut your tax tab if you act now.
Even though taxes aren't due until April, the end of the year is a good time for small business owners to plan ahead. (Photo: KUMOHD/Shutterstock)

Even with the end of the year looming, it’s not too late make a few smart moves to trim your tax bill. A call to your accountant or other tax preparer could be time and money well spent. Here are five topics you’ll most likely want to cover.

Size up your deductions

If your business operates on a cash basis rather than an accrual basis, now’s the time to look at your deductions and decide whether to rack up more of them before year’s end.


“Go through your accounts payable and settle up,” suggests Barbara Weltman, author of “J.K. Lasser’s Small Business Taxes 2017.” (Photo: Barbara Weltman)

A deduction could be more valuable to you now than it will be next year if your business enjoyed an especially profitable year (and next year looks iffier) or if you think Congress is likely to cut tax rates in 2017.

Where you can find these deductions? For starters, “Go through your accounts payable and settle up,” advised tax and business attorney Barbara Weltman, author of “J.K. Lasser’s Small Business Taxes 2017” and other books. If your utility bill isn’t due until early next year, pay it now anyway.

Then think about any equipment your business needs and whether it would make sense to buy now. As the result of a law passed in 2015, you may be able to take a Section 179 deduction for up to $500,000 in eligible equipment purchases. That applies whether you paid cash or financed the purchase, Weltman noted. The IRS has the rules on Section 179 deductions on its website.

Businesses can also take advantage of the special depreciation allowance, explained here. It allows you to write off 50 percent of the cost of a purchase in the first year. Weltman offered this example:

Say you bought equipment with a value of $600,000. You can take the first $500,000 as an expense under Section 179. Then you can claim 50 percent of the remaining $100,000 in special depreciation and take regular depreciation (which varies by type of property) on the rest.

Unless it is extended in the future, the special depreciation allowance is scheduled to drop to 40 percent in 2018 and 30 percent in 2019.

If your equipment needs are more modest, Weltman noted you can use the de minimis safe harbor rules to expense items of up to $2,500 per invoice or per item. “So if you’re buying iPads for everyone on your staff, that’s the simplest way to do it,” she says. The IRS explains those rules here.

Postpone income…or not

Typically, if you’re pulling deductions into the year that’s ending, you’ll also want to defer income to the year ahead. You can do that, for example, by waiting until after January 1 to send out invoices.

Again, whether that’s worth your effort will depend in part on how well your business did in the past year and what might happen to tax rates in the future. But there can be other considerations as well.

“If you need cash flow now, maybe you can’t afford to defer income. Or you might have a concern about whether a client will have trouble paying you later,” Weltman said. “So it’s not just about taxes.”

Remember retirement


(Photo: hin255/Shutterstock)

If you don’t already have retirement accounts in place, you may need to act before year’s end to establish one. To set up a profit-sharing plan, for example, you need to sign the paperwork by December 31, Weltman noted, although you have until your tax filing date next year to fund the plan.

If you can’t do it by December 31, a SEP retirement plan is another option. It can be established and funded next year. The Department of Labor website has useful guides to profit-sharing plans and SEP retirement plans.

Be charitable

Just as you may be planning some personal charitable giving right about now, the end of year is also a good time to consider gifts on behalf of your business. For example, if you have excess inventory or furniture or equipment your business no longer needs, consider donating it and taking a tax deduction.

Here’s Weltman’s advice on charitable giving from the Small Business Administration website.

Plan for next year

Though you may not have to pay the IRS until next April 15, or later if you file for an extension, you could save yourself some hassles if you do at least a rough calculation of any tax you’re likely to owe and think ahead to where that money is going to come from.

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