Like it or not, 2020 is coming to a close. Until the clock strikes midnight on December 31, 2020, there’s still time to put some year-end accounting strategies into place. Before you make plans for 2021, be sure your books are ready to go for the 2020 tax season. Now is the best time to reach out to your accountant, if you haven’t already, to see if there is anything you can do to better your bottom line. Here are some year-end accounting strategies you may be able to take advantage of before we wrap up 2020.
Defer Income Until 2021
If you receive income in the 2020 calendar year, it counts towards your total annual income. However, if you do work in 2020 that you don’t get paid for until 2021, the income counts on next year’s balance sheet.
Depending on your income levels and tax bracket, deferring income earned in 2020 until 2021 may save you money when you file your taxes. Ask your accountant if it makes sense for you to defer part of your income into next year to reduce the taxes you owe.
Invest or Start a Retirement Plan
If you don’t already have a retirement plan in place, now is the time to get one set up. Any payments made by December 31 will count towards contributions for this year. If you haven’t maxed out your contributions, it might make sense to do so and reduce your tax liability.
If you don’t already have a retirement plan, reach out to a financial advisor who can help you decide which type of plan makes sense for you and your business.
Make Charitable Contributions
The holiday season means many people are in a giving mood, which is a great reason to make charitable contributions. You’re able to help others in need while lowering your taxable income, which can also help reduce the amount of taxes you owe.
Monetary contributions are one way to give, but don’t forget about donating items you no longer need in your business. Maybe you have supplies, equipment, or office furniture you no longer need. Or you have some old stock to get rid of to make way for new. These contributions count, so be sure to get a receipt and document the items you donate so you can write off their fair market value.
Make Business Purchases
Now that you’ve offloaded unneeded items to charity, it might be time to purchase new equipment or supplies. Do you have vendors you need to pay, or can pay in advance? Can you get ahead of utility or other business bills?
Some may think the end of the year is the worst time to spend money on your business, but these items can get you a deduction on your business income in 2020.
Review Year-End Accounting Reports
If your bookkeeper or accountant hasn’t already provided your year-end reports, get them now, so you have a chance to review them before the year is gone.The detailed breakdowns of your balance sheet can help you prepare for tax time and find potential ways to get more tax advantages.
Use Year-End Accounting to Prepare for Next Year
If you’re running around trying to gather documents and prepare for next year, make sure the same thing doesn’t happen again at the end of 2021. Start an action plan now to stay on top of your business financials, so you can breathe easy next year and focus on other things, like the holiday season. Call us at JStevens Accounting for help with your year-end strategy and all through the year!