10 End-of-Year Tax Planning Tips for 2021
The End of 2021 is rapidly approaching and we have your Year-End Tax Planning Checklist:
- W-2 Reporting – Include officer health insurance on the W-2. Contact your payroll company before your last payroll to include this information on your W-2. It is free now to add the information, but they will charge you for it after the last payroll.
- Officer Salary – Ensure you have adequate officer salary and that your payroll company processes it before year-end.
- Retirement Accounts – Maximize your salary deferral for your retirement plan. Do not forget to calculate and pay the company match for your salary deferral and report to your payroll service.
- Estimated Tax Payments – Review your tax projection for 2021 and pay all required estimated tax payments for the year.
- Cash Basis Taxpayers – Your income is what you received less what you paid for the year. Accrual basis income statements must be converted to cash basis to have an accurate number for net income.
- Accrual Basis Taxpayers – Review your accounts receivable and write-off any bad debts to avoid paying taxes on money you will not receive. Enter all 2021 bills with a 2021 date.
- Inventory – If you maintain inventory, have an accurate count at the end of the year. Excess inventory on your books can equal excess tax paid. Inventory reporting has changed with the Tax Cuts and Jobs Act, and expensing inventory items under $2,500 is a planning consideration.
- Expense Reports – Submit expense reports for bills paid personally for the business in 2021, and then repay the business expense, including home offices expenses. Cash basis taxpayers must pay the expense in 2021 to take the deduction in 2021.
- 1099 Reporting – The IRS has increased penalties on failure to file 1099’s and other forms. The potential failure to file a 1099 has increased to $280 PER 1099. Failing to provide a 1099 to the subcontractor that is $280. Failing to file the 1099 with the IRS that is another $280. That is up to $560 per missed 1099! Review your payments for the year so that all subcontractors and other service providers that require a 1099 are identified.
- Tax Projections – Review tax projections and analyze the recommendations prepared for you. Implement them before year-end.
The tax reduction strategies above are designed to reduce your taxable income in 2021. If your tax rates are lower in 2021 and you are going to have more taxable income in 2022, reducing income in 2021 may not be advisable.
If you have any questions on the 2021 year-end tax checklist and your tax situation, contact us soon.
Our team of experts can help you with your business and personal tax preparation.