Year-End Planning Considerations For Business Owners

The end of the year can be a chaotic time for business owners. It is a time to compile data, review the numbers, evaluate strengths and weaknesses, and determine growth opportunities for the future. A business owner would be keen to review several factors in preparing year-end documents and preparing for the following year. Here are five tips that may assist with organizing a strategy.

Tax Planning – Have necessary steps been taken toward filing required business and individual tax returns so they get filed on time? The type of business will determine the tax consequence. There are five general types of business taxes and tax changes that can be applied.
- Income Tax – All businesses aside from partnerships file an annual income tax return. Partnerships file an information return.
- Estimated Tax – This tax comes from income generated by interest, dividends, alimony, self-employment income, capital gains, prizes, and awards.
- Self-employment Tax – Owed if earnings were $400 or more or church employee income was $108.28 or more.
- Employment Taxes – These taxes include federal income tax withholding, federal unemployment (FUTA) tax, and Social Security and Medicare taxes.
- Excise Tax – Applies if you manufacture or sell certain products, operate certain businesses, use certain equipment or facilities, or receive payment for specific services.
*Several forms may be required depending on the type of business.

Tax Changes – The Tax Cuts and Jobs Act of 2017 (TCJA) lowered the corporate income tax rate from 35% to 21%. If the business (such as an LLC) has grown considerably, it may be possible to elect to be taxed like a C corporation while the tax rate is low. This act is set to expire January 1, 2026.

Some businesses can take advantage of the Qualified Business Income Deduction (QBI) that offers a deduction worth up to 20% of their share of the business’s income. However, Specified Service Trades or Businesses (SSTBs) may not be eligible if income is too high. Examples include financial professionals, law firms, accountants, investment managers, and medical practices. Determining eligibility and calculating the deduction is complex, so seek assistance from a financial professional.
Understanding the Value of Life Insurance – Life insurance is not just about preserving lost wages for surviving family members. Cash values in life insurance can potentially become an asset, such as financing a buy-out or borrowing against the policy (or multiple policies) to help cover business expenses.
Cybersecurity Preparedness – Breaches within the cyberspace of companies have become a real threat. Hackers are sophisticated and regularly create innovative techniques to break into company databases. What steps are being taken to stay updated with evolving threats and protection against cyberattacks?
Defer or Accelerate Income – Smaller businesses often use the cash method of accounting. If the business is expected to be in a lower tax bracket the following year, consider deferring income. If a higher tax bracket is expected, consider accelerating income into the current year (for example, by sending invoices earlier so payments arrive sooner).
Record Out-of-Pocket Business Expenses – Maintain detailed records such as:
- Mileage logs to show to the IRS
- Money spent out of personal accounts for business purposes
- Cash receipts (gas, Uber/taxi, and other expenditures)

Important Disclosures

This material is for general information only and is not intended to provide specific advice or recommendations for any individual.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Please keep in mind that insurance companies alone determine insurability and some people may be deemed uninsurable because of health reasons, occupation, and lifestyle choices. Guarantees are based on the claims-paying ability of the issuing company.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by LPL Marketing Solutions

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