 |
Smart Yearend Planning - Tax Deductions |
|
|
Submitted by Kathleen Green
| RSS Feed
| Add Comment
| Bookmark Me!
There are three main areas we need to keep in mind as the year ends:
1. Taxes
2. Corporate formalities
3. Planning for next year
Revisit the idea of converting your 10 largest expenses.
This is an ongoing process that should be done at least twice the first year. It’s not realistic to expect you will convert all of your biggest expenses the first time around because it’s too big of a task—this is a habit needing to be developed over time. Our largest expenses, habits, and businesses all change over time. As your life evolves, so should your deductions, so keep current.
Strategy: upstreaming income.
The goal of upstreaming income is to shift income from this tax year to the next tax year. Whatever your operating account balance is on December 31 will get added, as of January 1, to your last year’s income. If you have a $50,000 balance, for example, going into the next year, that’s taxable income. You therefore should upstream the money, making it no longer taxable for that year. This strategy is applicable if you have an S Corp, partnership, limited partnership or sole proprietorship.
How to upstream income
Upstreaming income is accomplished by setting up a new entity such as a management company with a different yearend than your business. A business’s income can then be shifted out of the 2006 tax year to 2007. You will want a contract and invoices to reflect this agreement between your business and management company. Move the $50,000 balance to your management company with a June 1 yearend, for example. The money should be moved ideally at least on a monthly basis, not just once at the end of the year. I recommend taking five to 10 checks out of your checkbook and put them in a file for the upcoming year. In January, if you find out you had some expenses you missed—it’d be a lot better to have a check in sequence that you can write from December.
|
|
|
|
|
LinkedIn Recommendation:
 Annamarie Kaminska - SEO Account Manager at Plow King Studio - I am don't remember the last time I had such a life changing experience before I met Teo. He's full of energy and knowledge. I am on track to where I need to be with my business, and I feel that my relationship with him has made this all possible. He's a truly gifted person. - March 15, 2012, Annamarie was Teo's client |
|
Featured [wealth building] Articles:
|
|
