Q4 Tax Planning Can Boost Year-End Results


A Minnesota state-wide cross-country meet, held at St Olaf College, Northfield, Minn.

Summer’s barely in the rear-view mirror, but October 1, the beginning of the fourth quarter, is just around the corner. As you consider Q4 projections for your business, now’s a great time to revisit your tax planning for a strong finish to 2015.

We covered some business tax planning tips earlier this year. While it’s beneficial to be strategic about tax planning all year long, in the final three months of the year you can hone in on your total expected annual inflows and outflows – allowing you to make precise, smart moves that can make a big impact on year-end results.

Below are a few things to consider (and re-evaluate, now that you have a better picture of where you’ll be at the close of the year):

  1. Consider the timing of your income. As we’ve written before, businesses can defer some of their taxable income to the following year by postponing a portion of their billable revenues until the following year.
  2. Consider the timing of your expenses. Are you expecting an increase in profits this year? It might be helpful for you to move up a planned capital expenditure, or other purchases or expenses, into Q4 2015 to lower your taxable income.
    Whether you’re looking at income or expenses, there are limits to what is allowable under the law and feasible for your business. Your accounting/tax professionals can provide guidance for your timing-relate decisions.
  3. First-year equipment deductions. There are certain conditions under which businesses can claim depreciation allowance as first year expensing instead of the standard depreciation that takes place over multiple years.
  4. The R&D tax credit can apply to wide variety of business expenses. We’ve covered this before (more on that here). It is a valuable benefit that has been underutilized by small- and medium-sized businesses.
  5. Consider other ways to maximize deductions. With your year-end numbers in sight, now is a good time to assess your total projected taxable income and make sure you’re being strategic about maximizing deductions for your federal taxes, as well as state and local. For example, boosting retirement contributions — such as with discretionary 401K matches — could provide tax benefits for your business as well as for your employees. As you approach December 31 and your annual numbers are more clear, you can make smart decisions about corporate charitable donations, donating appreciated securities, and similar actions that can be helpful for the cause of your choice while also reducing your business tax burden.
  6. Capital gains are important for business tax planning, as capital gains-related tax issues can ripple through many different aspects of a business. This is a complex topic, and we won’t go into too much detail here. For now, a couple of examples of capital gains issues that could be affected (for better or worse) in the fourth quarter: Stock incentives can impact employees depending on how they’re structured (such as qualified vs unqualified stocks, and the timing of these with regards to how they’re treated as taxable income). Additionally, business owners should evaluate their personal capital gains taxes, and consider making adjustments as needed (if feasible) in the fourth quarter. Once again, timing can play an important role when considering impacts to individuals. For example, when a business owner, filing jointly with a spouse, exceeds the $250,000 threshold, the 3.8% Medicare surtax is applied (as covered in an earlier blog). Owners considering selling their interest in a partnership should proceed cautiously, as certain “hot assets” – such as accounts receivables and inventory – may be considered ordinary income as opposed to long term capital gain (and therefore taxed differently).

As you can see from these examples, achieving optimal results for business taxes can be a complex, ongoing task. This is why our number one piece of advice, which we repeat and repeat again, is to work closely with your accounting professional. Be sure that you are working with competent business tax experts. The above list is not complete, as there are myriad ways that businesses can fine-tune their tax planning. With this blog, we hope to give you some potentially useful ideas and perhaps spark some new ones. Most of all, we hope to encourage you to be strategic with your business tax planning.

When it comes to taxes, timing is (almost) everything, and planning is essential. Your accounting/tax professionals can provide guidance for making informed – and valuable – fourth quarter decisions that will help you to bring in the year with a win.

Photo credit: “MNSTATE” by ​English Wikipedia user Thorsoninwayzata. Licensed under CC BY-SA 3.0 via Commons

About the author

Brady is the owner of Ramsay & Associates. He specializes in financial statement preparation and personal, fiduciary and corporate tax and accounting.

His professional experience includes seven years' experience for local and national CPA firms before joining Ramsay & Associates in 2006.

He has a Bachelor of Accounting degree from the University of Minnesota Duluth. He is a Certified Public Accountant, a member of the Minnesota Society of CPA's, an Eagle Scout, as well as an active volunteer in the community.