As I write, we have 22 days left in this year of 2021. For most, that is the end of their tax year 12/31/2021.
Last minute maneuvers like funding your 401K and/or IRA account to the max are a must. Bankrate.com published this article:
https://www.bankrate.com/taxes/tax-saving-moves-before-end-of-year/
Some good ideas for those that can apply them. For others, you may be able to defer income into 2022, bunch deductions to Itemize, double up by donating losing stocks etc. to a charity.
By and large, the year is about done and tax planning will begin to focus on how to limit taxation in 2022 and beyond. Tax policy changes as do rates so stay alert and try to be proactive in response to the latest tax flavor.
Maximizing business expenses is a must but has a double edged sword because expenses come from cash flow which presumably has profits to retain or distribute. But, there are several expense categories that might enhance future profits so though these may be expenses they are also investments in the future growth and efficiency of the business.
Excess cash can also be used to retire debt which saves future interest expenses. However, debt reduction is NOT an expense. This is due to the way loans are recorded...loans are NOT INCOME because you get the deduction up front, then when repaying the loan you cannot double dip by calling it an expense. Meanwhile you get to deduct the interest charged on a loan as an expense. In spite of that, I like to see the Balance Sheet improve by removing or reducing debt when profit makes it possible. Of course, you want to make sure to retain enough operating capital to conduct day to day business. How much is enough varies by the business but 10% of revenues is a good starting point while for others with high inventory or raw materials expenses might need 50%. Here is a good basic article for more understanding.
https://www.investopedia.com/ask/answers/102915/how-much-working-capital-does-small-business-need.asp
OK, drive to that end of the year hoop and do your best to gather your thoughts for last minute tax saving maneuvers and note tax planning ideas going forward. I am always available to discuss your ideas and make suggestions.
Best to You!
Donn Marier
DM-Your Own CFO