We all know that tax planning is a year-round activity. However, there are still some year end tax tips 2018 you can use to lower your tax bill. Here are six last-minute tax strategies business owners should consider:
If your business uses the cash method of accounting, wait until early 2019 to send invoices. This is especially true if it would benefit from deferring income to next year. Accrual-basis businesses can defer recognition of certain advance payments. This include delivering products or providing services within the next year.
A cash-basis business may be able to reduce its 2018 taxes by prepaying certain expenses before the end of the year. A few examples include lease payments, insurance premiums, utility bills, office supplies and taxes. You can deduct several expenses up to 12 months in advance.
Take advantage of 100% bonus depreciation and Section 179 expensing to deduct the full cost of qualifying equipment or other fixed assets. Under the Tax Cuts and Jobs Act, bonus depreciation, like Sec. 179 expensing, is now available for both new and assets that are in use. Keep in mind that, to deduct the expense on your 2018 return, the assets must be placed in service — not just purchased — by the end of the year.
Here is one of our favorite year end tax tips 2018. What if you’d like to prepay expenses or buy equipment before the end of the year, but you don’t have the cash? Consider using your business credit card. Generally, paying expenses by credit card are deductible at the time of the charge. This is applicable even if you don’t pay the credit card bill until next year.
If you’re self-employed or own a pass-through business, one of the best ways to reduce your 2018 tax bill is to increase deductible contributions to retirement plans. Pass through businesses includes a partnership, limited liability company or S-corporation. Usually, you must make these contributions by year-end. But certain plans — such as SEP IRAs — allow your business to make 2018 contributions up until its tax return due date (including extensions).
Is your business is a sole proprietorship or pass through partnership? If so, you may qualify for the new pass-through deduction of up to 20% of qualified business income. However, you will need to see if your taxable income exceeds $157,500, or $315,000 for joint filers. If so, certain limitations kick in that can reduce or even eliminate the deduction. One way to avoid these limitations is to reduce your income below the threshold. For example, by having your business increase its retirement plan contributions.
Most of these year end tax tips 2018 are subject to various limitations and restrictions beyond what we’ve covered here. Before implementing any of these strategies please consult with us. We can also offer more ideas for reducing your taxes this year and next.