Your Business Made More Money This Year. What Should You Do With It Before December 31?
Business growth is something to celebrate, but with higher profits can come a larger tax bill. Before the year ends, take time to review your finances, consider available tax-saving strategies, and make decisions that could put your business in a stronger position.
Planning ahead can help you reduce surprises at tax time, make the most of what your business has earned, and start the new year on solid financial footing.
So, what should you do before December 31st?
1. Review Your Year-to-Date Profits
Take a close look at your income, expenses, and projected profit for the end of the year. If your business performed better than expected, you could owe more in taxes. Reviewing your finances now gives you time to explore tax-saving strategies and make adjustments before the year ends.
2. Evaluate Business Expenses and Investments
If you anticipate higher profits, consider whether your business needs equipment, technology, software, or other eligible investments. Depending on the type of purchase and applicable tax rules, certain expenses or assets may qualify for deductions.
Avoid making unnecessary purchases solely for a tax benefit. Your spending should support your business goals and long-term financial health.
3. Revisit Your Retirement Contributions
The end of the year is a good time to review your retirement savings options. Depending on your business structure and retirement plan, contributions to a qualified retirement plan may offer tax advantages while helping you build long-term financial security. Contribution limits, eligibility requirements, and deadlines vary, so consult your tax professional before making additional contributions.
4. Review Your Estimated Tax Payments
Higher profits can also mean a higher tax bill. Review the estimated tax payments you’ve made so far and compare them with your projected tax liability. If you’re falling short, an additional payment may help you avoid penalties and prevent an unwelcome surprise at tax time.
5. Reassess Your Business Structure and Compensation
As your business grows, your business structure and compensation strategy may need to evolve with it. Review how you structure your business, pay yourself, and take distributions to determine whether your current approach still makes sense. Working with a tax professional can help you identify adjustments that align with your financial goals and future growth.
6. Schedule a Year-End Tax Planning Review
Don't wait until tax season to start asking questions. An end-of-the-year review gives you time to assess your financial position, identify potential deductions, review outstanding obligations, and develop a plan for the months ahead. The earlier you identify opportunities, the more time you have to determine which strategies are appropriate for your business.
Make Your Profits Work for You
Celebrate your growth, but don’t overlook the importance of planning ahead. Act before December 31 to strengthen your tax position, prepare for your obligations, and start the new year with greater financial confidence.
Need help preparing for year-end? Connect with a VAAS tax professional to review your business finances, discuss potential tax-saving opportunities, and develop a strategy that supports your business goals.
