Year End Tax Planning Basics

This can be a difficult subject, depending on your needs. I’ve had conversations with most of you doing your year end tax planning, but would still like to go through some of the basics. One of the most fundamental jobs of any accountant is to help a client reach their goals. In different years, those goals will change.

Most of the time, we want to legally do what we can to reduce taxable income. Many of you, through innovation, are having the best year of your lives. That’s all fine and wonderful until you get the income tax bill. Then you want to scream.

Also, many of you are having the worst year of your lives. As such, you may want to reduce that loss so that you can obtain financing for one of your goals in the years to come. There are many ways that we can obtain this goal as well, through legal means.

Cash Basis

If you are a cash basis taxpayer, then your year end tax planning is all about cash. We record sales based on your deposits and pick up expenses when your checks are written.

If you would like to reduce your income, then you need to pay bills that are deductible expenses. Those checks must be dated prior to New Years if you are a calendar year taxpayer. Writing every check in your checkbook may not help if you overdraw your account. We can only record expenses up to your reconciled bank balance. If you go into the red, it will not help you.

On the other hand, if you would like to increase your income in these difficult times, then conserve your cash. Pay those bills with a check dated after the New Year.

Accrual Basis

If you are on the accrual basis, then managing your cash will have nothing to do with your taxable income. Revenues are reported when you bill a job, and expenses occur when you receive a bill. Your accounts receivable and accounts payable are counted as sales and expenses, to more reasonably record your results in a timely manner.

If you would like to reduce a taxable event, then you must reduce your receivables and increase your payables. If you would like to show more income then the opposite is true. In that instance you would increase your receivables and reduce your payables.

If you don’t have an accountant who is doing tax planning for your business and personal needs, maybe its time for a change. Please give us a call.

Let me leave you with this.

My family celebrates the Christ Mass first at my Mama’s house. She cooks a ham with green beans and yams on the side. We open her presents in front of the roaring fire in her fireplace. Her home is decorated beautifully with garland, candles, and its magical. I can’t begin to tell all of you how wonderful it truly was.

This morning my wife, my daughter, and I opened our presents. We begin by opening the Christmas cards and then move on to the presents. Afterwards, we went to Church to celebrate the birth of the savior.

Later we’ll celebrate Christmas Day at my home with a prime rib, mashed potatoes, and brussel sprouts. When we sit down we’ll hold hands and give thanks, only this year the prayer will be different because we all have so much more to be thankful for.

I’ll be thankful for the family at my table and our continued health. I’ll be thankful for my employees and the privilege it is to work with like-minded professionals who come to work everyday wanting to do the best work of their careers. I’ll also be thankful for you, my clients.

Mostly, I’ll be thankful that in this pandemic, I’m still here. You can’t know what pleasure it is to wake up everyday knowing that I can help all of you.

If you have lost someone or something that was important to you, please remember that not every cage is a prison, and not every loss is eternal..

No matter what your religious beliefs happen to be, may whatever God you pray to bless you, your families, and your businesses at this joyous Christmas time.

We’re all going to get through this. Let’s get through this together.

Accounting Solutions Ltd. stands ready to complete our mission and purpose of protecting you, your family, and your business. If there is anything you need, whether you are a current client or not, you have but to ask. I’m here and I remain,

Sincerely yours,

Chris Amundson
Accounting Solutions Ltd.

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