As the holiday season approaches, your business will face a whirlwind of activity, from increased sales to managing inventory and staffing. Amidst this hustle, it’s essential to keep tax management in mind to ensure a smooth financial year-end. Here are some practical tax tips to help you navigate the holiday season effectively.
1. Stay Organized with Record-Keeping
The holiday rush can lead to ignoring looking at purchase statements and bank feeds for every transaction made. To simplify your tax preparation, maintain organized records throughout the season. Use accounting software ( I’m a fan of QuickBooks) or a dedicated folder to track all transactions, including sales, expenses, and any business-related gifts. This organization will make it easier to prepare for tax season and ensure you don’t miss any deductions.
2. Understand Sales Tax Obligations
With increased sales during the holidays, it’s crucial to understand your sales tax obligations. Ensure you are charging the correct sales tax for the jurisdictions in which you operate. Review any local tax regulations, as they can vary significantly, especially for online sales.
Many shop hosting sites such as Shopify make this easy for you if you simply log into the sales tax tab on the back end of your site. Consider consulting a tax professional to confirm compliance and avoid any potential penalties.
3. Maximize Deductions for Holiday Expenses
The holiday season often brings added costs, including marketing campaigns, employee bonuses, and holiday parties. Fortunately, many of these expenses may be tax-deductible, so it’s important to keep thorough records.
Gifts given in the course of your business with the intention of strengthening business relationships may be tax-deductible. The IRS allows a deduction of up to $25 per recipient for business gifts provided during the tax year.
4. Plan for Estimated Taxes
If your business experiences a significant increase in income during the holiday season, it’s wise to revisit your estimated tax payments. Higher revenue could push you into a higher tax bracket, resulting in larger tax liabilities. Adjusting your estimated tax payments now can help you avoid underpayment penalties later and reduce that big payment due once tax day arrives. The next tax payment period for estimated quarterly payments is due on January 15, 2025
Note: If you are making above $200k a year in your business I would advise you get in touch with a tax advisory that can counsel you on better ways to move your money to legally avoid having a big tax bill. Believe me there are strategies for you.
5. Consider Year-End Inventory Management
The end of the year is a prime time to assess your inventory. Conduct a thorough inventory count and evaluate what products are selling well and which are not. This assessment can help you make strategic decisions for the coming year and can also impact your tax calculations.
6. Utilize Employee Benefits Wisely
The holidays are an excellent time to reward your employees, but be mindful of how these benefits affect your taxes. Offering bonuses are considered wages (supplemental wages) by the IRS. meaning they are subject to income tax and must be reported as part of the employee’s taxable income. If you are a business owner know that the bonus should be included as part of your employees normal payroll.
Note: I was recently asked this question, and I want to clarify: If your employer pays you as a W2 employee and then suggests you set up your own LLC to avoid taxes on a bonus, this is not correct. Any bonus you receive should be processed through payroll, just like your regular wages.
7. Keep an Eye on Retirement Contributions
If you offer retirement plans, the end of the year is a key time to review contributions. Depending on your plan, you may be able to make contributions up until the tax filing deadline (April 15th). Contributions to employee retirement accounts can also provide tax benefits for your business, so consider maximizing these contributions if feasible.
8. Seek Professional Help
Navigating the complexities of tax regulations can be daunting, especially during the busy holiday season. If you’re unsure about your tax situation, consider hiring a tax advisor or accountant. They can help you make informed decisions, identify potential deductions, and ensure compliance with tax laws.
Conclusion
The holiday season is a time for celebration and growth, but it also brings unique challenges. By staying organized, understanding your tax obligations, and planning strategically, you can navigate the holiday season with confidence. Taking these steps now will not only help you during tax season but also set your business up for success in the new year. Happy holidays and happy planning!
