It’s the MOST Beautiful Time of the Year...Tax Planning Time!

Updated: 5 days ago



I bet with a title like that you thought this blog post was going to be all about how magical the holidays can be and, while that is definitely true, it’s an even more magical time of year if you can reduce the amount of taxes that you’re going to have to pay. Solid tax planning and implementation of advanced tax reduction strategies BEFORE year-end are the gifts that keep on giving….year after year after year.


If you are new to tax planning or aren’t sure what this is all about, I’m going to give you the inside scoop as to what the process looks like and also provide a list of key tax planning topics that you should be discussing with your CPA every year.


Tax planning begins by collecting financial information about what has occurred year-to-date in your business and, if your entity is a pass-through for tax purposes, what has occurred year-to-date for you personally. Since the majority of owner-operated businesses are pass-throughs, we’re going to be primarily using this scenario in our discussion.


So, for the business(es) you operate, you’ll want to make sure the books are updated through October (and that means bank accounts reconciled and the whole month-end close process completed….if that’s not happening monthly then, well, we have a whole other problem to address and you’ll just have to call me so I can explain why routine accounting records are the key to your business’ success). Also, you’ll need to project sales, cash collections, additional expenses or equipment purchases that will occur in November and December. Depending upon the basis upon which your business files taxes (cash or accrual), convert the net income to the appropriate basis. Do this for each business.


Next, gather your personal financial information – paystubs (wages, FIT withheld), estimated interest income, estimated capital gains, expected K-1 income, estimated itemized deductions, estimated tax payments. Pretty much everything that was on your 1040 from last year will need an estimate for what the current year is going to look like PLUS anything new for the current year.


Once you have all this information gathered, then work up a draft tax return and plug in all the current year data. Boom – you have projected your tax liability…..are the angels singing or do you need a Christmas miracle?



Let’s just pretend that taxes due are bigger than the giant pile of gifts that the Grinch stole….and you aren’t feeling nearly as jolly. Don’t lose hope….now comes the creative and fun part….brainstorming all of the things that you could do to influence this tax liability. What’s next is going to look a little bit like Santa’s list…it’s long but there are many, many things to be thinking about.

  • Entity structure/organization

  • Deductions/purchases and expense acceleration (for cash basis taxpayers)

  • Cash receipts and income deferral (for cash basis taxpayers) or income shifting/tax bracket management

  • Tax incentives and credits

  • Optimizing the Qualified Business Income deduction

  • Possible changes in accounting principle (inventory write-off, depreciation, moving from accrual to cash basis, etc.)

  • Putting kids on the payroll

  • Looking at risk that is not currently insured and setting up your own insurance company

  • Eliminating underpayment penalties

  • Harvesting capital losses to offset capital gains

  • Leveraging charitable giving in high income years

  • Using retirement planning as a tool

  • Harnessing unused losses or carryforwards

  • Looking at eligibility for Health Savings Account</