3 Tips for Stress-Free Year-End Tax Planning

What exactly is year-end tax planning? This phrase comes up as something important to do, something business owners must do, but no one ever tells you how HOW to do it. It can make the time between Thanksgiving and the New Year something to dread, especially when you feel like you should be doing more, yet you're unsure what that "more" is. 

I want to simplify that for you. Here are my 3 quick tips to simplify year-end tax planning for your business along with the reasons tax planning matters. 

1. Focus on what you can control now

Whether it has been a better or worse year through November 30, the truth is there are only a few things you can do between now and the clock striking midnight on December 31 that will make a difference in your bottom line. 

Here are a couple:

1. Year-end bonus to owners – if you plan on paying yourself a bonus through wages, you may want to contact your accountant to make sure it makes sense to pay this bonus through payroll, which is subject to payroll taxes vs. taking the amount as a distribution. Depending on the tax picture of your business, a distribution may save you money in taxes.
2. Year-end purchases – do you have additional purchases for equipment, or furniture that you have been putting off? If you are cash flow positive and plan to make these purchases in 2020, it may make sense to make the purchase before the end of 2019 so you receive a benefit on this year’s tax return

2. Focus on where your cash may be hiding 

So many times we push off the dreaded year-end inventory count as a way to appease our employees who are already dreading it. But the truth is a year-end physical inventory is CRITICAL to closing out the year for your business.  Why? Your inventory balance on January 1, 2020, should ONLY reflect the inventory you will be able to sell in the new year. Any old, out-dated and obsolete items should be removed and written off in the current year.  Without a physical inventory being taken, it is impossible to know the accurate dollar amount of what is on your shelves and if there is a write-down to be taken. 

For so many of us this is contrary to how we handle our operations throughout the year.  Afterall, we store all products in inventory until they are sold.  But for tax purposes we want to make sure that our inventory listed in our financial accounting software does not include unrecorded waste and/or spoiled products.  

3. To pay or not to pay

For many of us, the idea of quarterly estimates can be frightening. What does this mean? How do I know if I need to make a payment? This becomes even more complicated in the restaurant industry, where the FICA tip credit is a reduction against the business income on individual returns. Here are a few quick questions to ask to see if quarterly estimates may be applicable to you:

1. Did you have a tax liability in 2018 on your individual return?
2. Did your bottom line improve in 2019?
3. Do you have income outside of your business, i.e., investments, that have performed well in 2019?

If any of these are the case, you may want to reach out to your accountant to talk through your year-to-date financials and if quarterly estimates are applicable.

While these are a few quick tips to help reduce the stress during December for tax planning, please feel free to reach out if you would like to schedule a time to review your individual tax picture with The Largo Group's Director of Tax Services Maria McGoldrick. We are excited to have Maria as part of our team this year.  She comes to us from Earnst & Young with 17-plus years of tax and accounting experience and is happy to assist at any time throughout the year, all included in our pricing structure. 

If you'd like to learn what successful restaurant owners know about accounting, download our free report, "How to Avoid the 5 Pitfalls of Restaurant Accounting." Be on your way to becoming an expert on your business's accounting and have confidence in your accounting decisions. 

Author: Anne Gannon, founder and principal of The Largo Group.