Plan for possible future tax changes.

The details of tax reform aren’t decided, but the current political climate suggests it’s more likely that businesses will pay less taxes in the future rather than more, assuming at least some of the potential tax changes that are currently being discussed do take place. If you operate a sole proprietorship, limited liability company, or an S-Corporation and expect to be in the same tax bracket from 2017 to 2018, you could benefit from accelerating deductions for the remaining part of 2017, and deferring some income to 2018. How do you go about (legally) strategize the timing of income and expenses for tax planning purposes? It’s not as complicated as you may think, especially if you use cash-method accounting to run your business. For example, you could:

Make credit card expenses that you would typically pay in 2018 in 2017.  From a tax standpoint, the expense is considered as having taken place in the 2017 tax year, even if the bill doesn’t arrive until 2018. The same rules apply to checks. The expense is considered as having taken place in the year that you wrote the checks, even if the recipient doesn’t cash it until 2018.

Delay invoicing until after the first of the year. In all likelihood, you and your employees will take at least some time off around the holiday. Instead of issuing invoices on your normal accounting cadence as the year end approaches, consider waiting to send them until 2018. You’ll defer some income into the next tax year, and could lower some of your 2017 tax liability in the process. 

Here are several steps you may want to consider in December 2017 to better manage how much tax you potentially owe when you file your small business tax return in 2018.

Complete retirement plan account opening.  

Small business owners can choose to take advantage of a number of different retirement plans to support their employee’s retirement saving goals as well their own. Depending on the account type, a small business retirement plan may also reduce your overall tax liability in 2017—provided you act quickly.

If your goal is to make tax-deductible retirement contributions that apply to the 2017 tax year and you have yet to establish a profit-sharing, 401(k) or defined benefit plan, you must complete the account opening process with the financial institution who will manage your plan before the end of the year. Once the plan is set up, you may be able to make contributions to it until the official Federal tax filing deadline, but eligible to apply the contribution to the 2017 tax year.

Minimize taxes by purchasing business equipment

Know you want to invest in new equipment related to your business but haven’t pulled the trigger? The future of tax reform remains uncertain, but experts often recommend that taxpayers take advantage of the information that is known and applies to the current tax year in such times. Small businesses who want to minimize their tax liability, for example, may want to consider purchasing equipment or a large business vehicle in the 2017 tax year, while benefits like instant depreciation still exist. 

If you’ll purchase a business vehicle, choose the model with tax advantages in mind. The Section 179 deduction for business vehicle depreciation defines eligible depreciation in part by the manufacturer’s gross vehicle weight rating (GVWR) above 6,000 pounds. You’ll likely fare better (in the sense of depreciation/potential deduction) by purchasing a heavy SUV, van or truck that falls into this category, rather than a lighter vehicle.  Provided you use the vehicle for business more than half of the time, buy it (don’t lease it), and put it into service before the end of the year, you may have an opportunity to take advantage of a significant business vehicle deduction.