written by Mark Lamb
Like sands through the hour glass, so go the days of 2015. But, there is still time for tax planning in order to reduce potential income taxes.
Below are a few simple strategies for small businesses or self-employed individuals which can be implemented even late in the year:
Defer income or Accelerate income
If you anticipate your taxable income to be higher in 2015 than 2016, consider pushing part of your income into the next tax year. If your business uses the cash method of accounting, consider delaying year-end billings so that the income is not received until 2016.
The reverse side of the above strategy may be beneficial, especially if 2016 taxable income is expected to be higher than 2015. In this case, on the cash method, consider pulling as many year-end billing and collections into 2015.
Defer expenses or Accelerate expenses
Again on the cash method, if 2016 taxable income is expected to be higher – postpone payment of some year-end expenses until 2016. If 2015 taxable income is expected to be higher, consider pre-paying some the 2016 expenses in 2015.
If you are contemplating purchasing equipment for your business, consider making the purchase prior to the end of 2015. This will allow you to make a Sec 179 election, and expense up to $25,000 of equipment costs in 2015.
Home office deduction
If there is a room in your home (or a separate structure not attached to the residence) used regularly and exclusively as a principal place of business, you may qualify for a home office deduction; there are certain qualifications to meet for this deduction. As an alternative, consider using the IRS safe harbor deduction. The safe harbor also minimizes audit risk.
For businesses using the accrual method of accounting, identify and write off worthless accounts receivable before the end of 2015. Writing these accounts off does not necessarily mean collection efforts have to cease, but will help ‘clean up’ your records. The write off also creates a tax deduction for your business.
If you are pursuing selling property (real or tangible) with a gain by the end of 2015, consider a sale on the installment method. By using this method, the gain and resulting tax are reported ratably as collections are made. Otherwise the entire gain is taxed in the year of sale. Which means the tax is also due for that year.
Tax planning should be discussed beforehand with a professional. Please contact one of the tax advisors at The Whitlock Company at 417-881-0145 if you would like more information on any of these strategies. They would be glad to discuss them with you.