Speaker 1: Hello from Freedom Tax Accounting. We're an accounting firm where we have been providing quality tax and accounting services now for over 20 years. In this video, we're going to discuss the top 10 year-end tax planning strategies that every small business owner should implement before the year ends so they can save on taxes next year. So here we go. Let's go right into the content. As I mentioned, we're going to go through the top 10 and at the end, I'm going to give you a bonus tip. Year-end tax planning strategy for small businesses so you can save on taxes. So stay till the end so you get the bonus tip. So number one, basically, is you have to put your bookkeeping up to date. If you don't have your bookkeeping up to date, it's going to be hard to plan. Why? Because realistically, in order to plan, you have to have a bookkeeping plan. So you have to have a bookkeeping plan. So you have to have a bookkeeping plan. So you have to have a bookkeeping plan. So you have to have a tax plan effectively. We need to have a profit and loss year to date of your accounting so we can know exactly the numbers, the gross income, the expenses, the net profit you have until now. So that way we can do projections and especially with the profit and loss, we can do better tax planning for next year. Also, we need to have a balance sheet. Why? Because on the balance sheet, we're going to see your debts and your business assets. And these assets may open the door to implement certain tax strategies for your business. Now, having the accounting up to date also prepares you for getting your 1099 and your W-2s done. Remember that in January, your business has to file the W-2s and the 1099s. Doing the bookkeeping now at the end of the year, or having your bookkeeping up to date, you will know exactly how many people you have to give 1099s, how many people you need to do W-2s. And if you have missing information from any of your contractors, then get that information now so you're able to do the 1099s in January. So tip number one for tax planning at the end of the year, have your bookkeeping up to date. If you don't, we can help you put your bookkeeping up to date. And contact us so we can help you have your accounting up to date this year, okay? Now, tip number two, you have to optimize your tax structure. Remember, if you have a corporation, a corporation can file taxes as an S-corp or a C-corp. If you have an LLC, the LLC can file taxes as an S-corp, as a C-corp, as a sole proprietor. As a partnership. So you have different options on how your business can file taxes. And depending on what your business is doing, then you may want to elect that your business be taxed under these structures so you get the most tax benefits. So this is something that you need to do is optimize your tax structure. If you don't know which tax structure you have, please contact us. Contact us or contact your tax professional and let them know what you're doing. Are you doing active income? Are you doing real estate? Because all these factors will determine what's the best tax structure for your business. Now, talking about optimizing your tax structure, one of the best end of the year tax strategies is to do a retroactive S-corporation election to January 1st, okay? So if you have a corporation or an LLC and you're doing active income, you're not doing real estate rentals. If you're doing real estate rentals, you don't want to have those rentals under an S-corp. But if you're doing active income, you're selling stuff online, you're a plumber, you're an attorney, you have a store, you're providing services, you're a consultant, any ordinary active income, usually the S-corp is going to be the one that's going to be the most active income. So the S-corporation should be the best tax structure. Now, you may have opened an LLC this year and some people think that you only have 75 days after you open a business to have the S-corp election. No. Even though we're at the end of the year, we can still change your business tax structure to an S-corp effective January 1st of this year. So you take advantage of the S-corp tax advantages. Now, if you do this, especially for LLCs that have more than $40,000 in net profit, you should change to an S-corp. Now, remember, this is only for active income. If you're doing passive income, like rental properties, you don't change it to an S-corp. But if you're doing active income, then if you have an LLC, that's going to be the one that's going to be the most active income. That's going to net profit of $40,000 or more. You should change to an S-corp before the year ends. So you save a lot in self-employment taxes. Now, if you change your business to an S-corp effective this year, remember that you must have the payroll fourth quarter reports by January 31st and you must have the payroll deposits. By January 15th of next year, because once you are elected or approved to be an S-corp, remember as the owner of an S-corp, you have to have reasonable compensation via payroll. So you have the tax advantages, but you also have to meet the S-corp demands of the owners paying themselves through payroll. And you can at least run payroll in the fourth quarter. Now, tax strategy number three for the end of the year for all business owners is check the amount that the owner has been paying themselves in payroll this year. Okay. You as the business owner should be getting compensated via payroll. Now, depending on your gross income and your net profit, you should pay yourself a reasonable amount of payroll. Now, if you pay yourself less, you may be paying yourself too much based on your company's net profit. So maybe you should pay yourself less in payroll. Why? Because if you pay yourself less, especially on an S-corp, you save on self-employment taxes or FICA. All right. Now, maybe you're paying yourself too much. Maybe you're paying yourself too much. Maybe you're paying too little and you need to pay yourself more till the end of the year because you need to meet the reasonable compensation rules for business owners. Okay. Now, you can also, you also can optimize your contributions to the 401k, right? Because the 401k depends on how much you pay yourself. So we may want to check how much you're paying yourself in payroll if you want to make more contributions. Towards your 401k. Also, you may want to adjust your payroll depending on other goals you may have. For example, we have many small business owners that they want to buy a real estate property next year. But in order for them to get that home mortgage approved, they need to report a certain income level. So this is the time to adjust your payroll to also meet any future goals you may have. Okay. Now, tax planning, end of the year tax planning tip number four, buy a vehicle or equipment that you need before the year ends. Now, why should you buy a vehicle or equipment before the year ends? Because you can deduct the accelerated depreciation using section 179 and bonus depreciation. So that is going to give you a lot of money. So you can give you a higher expense. It's going to lower your net profit and you're going to pay less taxes. All right. Now, do this only if you really need a vehicle or equipment for your business. We would never recommend a business owner to buy a new car or to buy a vehicle for the business or to buy equipment for the business just to get a tax write-off. Just if you're planning on buying a business vehicle soon, or if you're planning on buying equipment for the business soon, buy it now before the year ends. So you get the tax write-off. All right. Now, tax strategy number five for business owners, year end tax planning, do a cost segregation study. Okay. Now, what is a cost segregation study? Usually people think of cost segregation studies only for commercial estate, but you can also implement the cost segregation tax strategy if you have residential real estate as well. Basically what you're doing, you hire an engineering firm to do a study on your property. And what that reports allows your accountant to do, right, is to take accelerated depreciation. And if you do it correctly, you can offset those losses. So you can do a cost segregation process against your ordinary income. Now, in order to achieve this, please talk to your tax professional because it has to be done a specific way in order for that accelerated depreciation to offset your ordinary income. But the cost segregation is a very good strategy for small business owners that have a high net profit at the end of the year. Buy a commercial real estate or residential real estate before the year ends. Do it. Do a cost segregation study so you can take advantage of that accelerated depreciation, get those losses, and have them offset your ordinary income. Okay. Now, number six on our list of the top 10 year end tax strategies for small business owners is have your board of advisors meeting. Now, every business should have a board of advisors or a board of directors. And we always suggest that you have your wife and your adult children and family members or other people that you trust on your board of advisors. Why? Because you should have a board of advisors meeting before the year ends. And you can take advantage of travel and dining expenses. For example, you can take, if your wife and children are in your board of advisors of your business, you can go to your board of advisors and you can take advantage of travel and dining expenses. You can go to an location. You can go to Mexico. You can go to Jamaica. You can go to Puerto Rico. You can go to Florida. You can go to Hawaii. And part of those travel expenses may be a business expense because you're going to have your board meeting in that location. Okay. So you can take advantage of those dining and travel expenses. Okay. Now, you should always have a board of advisors meeting anyway. So you can produce a board of advisors meeting before the year ends. Protect the corporate view of your business. You need to fortify your asset protection. In case of an audit, the IRS will always ask for, let me see your meetings. Let me see what you have discussed with your board of advisors. If you're in a lawsuit, the other lawyers and attorney, they're going to ask for the board of advisor meeting minutes on the lawsuit. So you should always have the board of advisor meetings, not only for the travel and dining expenses, but also for the but to help legally protect your business. Now, number seven, tax tip, year end tax tip for small businesses is paying your kids. Okay. Now you have to pay your kids for actual labor. You just don't pay your kids for paying your kids to get the write-off. No, you have to pay them fair market value wages for actual work. They are doing for your business. Okay. And you need to keep track of everything they've done and why you're paying them. Okay. Basically what you're doing with this strategy is you're shifting income to a lower tax bracket. How does that work? Remember that you're going to have to pay for your kids stuff anyway. So why should you pay yourself to pay your kids? So now if you pay your kids directly for what you're doing, you're going to have to pay for your kids. So you're going to have to pay for the work that they are doing for the business, right? Now that money gets deposited into their bank account and they can pay for their stuff. So you can pay yourself less. They're going to pay taxes on whatever you pay them, but they're at a much lower tax bracket than yourself. So this is one of the best end of the year tax strategies for small business owners. Okay. Now, if you have kids that are 18 years, or older, you pay them via a W-2 or a 1099. If you have children under 18, you pay them via a family management company. Now you can look online that strategy. Okay. How to pay my kids from my business that are under 18 through a family management company. And the reason you want to do that is because basically it's tax-free money for your kids. They won't have to pay FICA and that can save you a lot of money in taxes as well. Right? So now the number eight tax planning strategy for the end of the year for business owners is to set up a solo 401k. For solopreneurs, the solo 401k is my favorite retirement account strategy because you can get a lot, a bigger write-off. Okay. So if you're going to set up a solo 401k, you must, it must be set up by 1231 to get the deferral. All right. Now, remember that you can defer at least this year at the time of this recording. Maybe this has changed in the future, but at the time of this recording, you can defer up to $22,500. And if you're over, if you're 50 or more, you can defer up to $30,000. So this is a big tax deduction. You can get just by setting up your solo 401k. All right. Now, end of the year tax strategy number nine, contribute to charitable contributions. Okay. So basically you can donate to your church or other qualified nonprofits. Okay. This is not a dollar for dollar tax saving, but it helps you lower your taxable income VAT. A tax deduction. So why would you want to do that? Because you may be in a position that this may help you get into a lower tax bracket. So if you're right, like in the edge from a tax bracket from another, maybe you want to do a contribute to charity, and that's going to bring your taxable income down. And then the rest of your income gets to be in a lower tax bracket. So this is one good way to do that. And then the other way is to contribute to charitable contributions. Okay. So this is a really good end of the year tax strategy for small business owners. Now, tax strategy number 10, end of the year tax strategy for small business owners is delay payments until next year. Okay. Why should you do that? If you tell a client, don't pay me now, pay me in January. If you can do that, then that amount of income will not count for the current year. All right. And that's going to help you. It's going to give you more time for tax plan. I always remember a case like three years ago, we had a client, the client called us the second week of December telling us, I'm going to get a $4 million commission. What can I do to pay less taxes on this income I'm getting? We told them, well, wow, but it's almost the end of the year. So there's very little time. Things we can do to offset that income. So we told them, can you tell your client to pay you that commission in January? And they said, yes. So that gave us an entire year to tax plan for this client. So this may be one of the best tax planning strategies for you. If it's the end of the year and you can delay and postpone income till next year. All right. Now what's the bonus? The bonus end of the year tax strategy for small business owners is something called the oil and gas intangible drilling cost deduction. This is something most people don't know, but if we see a client that has a very high net profit, they're high income earners. This is a strategy we implement. This is one of the few strategies where you can get like an, 80% and in some cases, almost a hundred percent tax deduction on the total amount of your, of your investment. Okay. Now the good thing about this strategy is that it offsets ordinary income or capital gains. Now, in most cases, you have to be an accredited investor to invest in one of these companies. So if you look online intangible drilling cost deduction companies, you're going to see a lot of companies that are doing this. So if you look online, intangible drilling cost deduction companies, you're going to see a lot of companies that are doing this. You're going to find a lot of different companies that you may be able to invest in. So this is an investment. There's always risk. So do your due diligence and study these companies that you're planning to invest in before you put money in, but it's a very powerful tax planning strategies, especially for high income earners. Okay. So that is it. Those are the top 10 and bonus year end tax planning strategies for small business owners. This is our contact information. Call us if you need help with any tax needs you may have. We can help you with your bookkeeping. We can do your personal taxes. We can do your corporate taxes. We do tax planning as well. So call us if you have any tax needs here at Freedom Tax Accounting. So I hope you have received valuable information in this video. If you have like it and share it with another business owner, that can take advantage of this information. Thank you for watching. God bless. Bye-bye.