2020 has been a tough year. Why not treat yourself to some savings? Read on to get actionable ideas for reducing your taxes. Then, act quickly, and ring out the old with a lower tax debt.
Mike Miller, Editor-in-Chief of Wilderness Times.
Change billing cycle
If you’re trying to minimize your tax liabilities, one of the best things you can do is pay upfront for products or services that you’ll need to use next year.
The easiest way to do this is to change your billing cycle from monthly to annually. Most (if not all) SaaS services that charge monthly offer discounts if you pay annually. Considering that expenses incurred in 2020 count for this year even if the service is applied next year, this means that paying ahead can cut your tax bill today AND get you in at a better rate. Win-win!
The problem with this is that many business owners pay for products or services they don’t actually use. So, before you go paying for a year-long subscription, make sure that you actually use this product devoutly, and plan on using it for 2021.
Pro-tip: you can also use this as a time to negotiate a rate decrease with your sales rep. Tell them, “Look, I’m curious about paying annually, but only if I can get a good deal. What can you do for me?” Just asking that one question could help you save 10-30% off the cost of the product.
David Walter, CEO of Electrician Mentor.
Boost retirement contributions
If you want to minimize your tax liabilities before the end of the year, boost retirement contributions, especially to your 401k and traditional IRA accounts. Plus, make charitable donations. They can be cash, merchandise, or a variety of other things, but this will certainly result in reducing your tax liability.
Janet Patterson, a VP of Marketing Communications for Highway Title Loans and the feature editor of its Lending Blog.
Pay outstanding payables and defer your income
If you have cash on hand and you are using a cash-basis accounting method, you should consider clearing all outstanding accounts payable within the year, even if the payments aren’t due. This action will help you record the expense in the current year, and, in turn, it reduces your net income and tax bill.
Another way to reduce your taxable income is to defer your income until the following year. You can delay sending out invoices or delay customer due dates to post 31 December for cash-based accounting. Since the tax is based on “when you receive the payment,” this will reduce your tax liability.
However, this method can be difficult for accrual-based accounting since you cannot delay any deliveries or orders. Accrual accounting has strict rules when it comes to recording deferred income. It is suggested that you check with your service provider to confirm if you can make this move.
Jaquetta T Ragland, Owner of YoungandFinance.com. Jaquetta is a licensed real estate agent in North Carolina.
One of the best last-minute year-end expenses to minimize tax liabilities is purchasing advertising and marketing in advance. In the past, I have purchased marketing materials, ad space, and advertising contracts at the end of the year. Although I was using the advertising services for the following year, I was still able to expense it for the year I made the purchase.
William Taylor is the Career Development Manager at VelvetJobs.
Donating appreciated stock
From my experience, the best last-minute year-end expenses to minimize tax liabilities include maxing out your retirement contributions, donating appreciated stock, and selling any unrealized losses on your investments to offset any gains made.
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