2015 Year-End Tax Planning Thoughts

It’s mid-November and time for Freelancers to think about how much money we will hand over to the tax man this year. Tax planning is usually at top of mind as the year ends, but be advised that obsessing over taxes is not always useful. New York City CPA and small business tax specialist Michael Hanley recommends that you take a breath and consider the impact that aggressive tax strategies would have on your financial circumstances.

Hanley cautions small business owners and Freelancers against inflated spending on business expenses just to give themselves a lower tax bill, because tax deductions are not a dollar-for-dollar benefit. Every dollar written off as a deduction yields on average only 30 cents in tax savings (depending on your tax bracket and legal structure of the business). If you have a big-ticket item to buy and you anticipate that this year’s income and next year’s will be about the same, then buy when you can get the best price on the item, be it in this year or next. Your savings could be worth more than the tax deduction.

Hanley also addresses the apparently common tactic of zeroing out one’s business bank account by December 31. Paying for business expenses, adding to your retirement account, or purchasing business equipment or supplies will likely make the zero balance bank account tactic work. Paying yourself a bonus, taking a shareholder distribution if your business is a corporate entity, paying down your credit line at the bank, or paying off business credit cards will not give you legitimate tax deductions.

Professional development education is tax-deductible, so if you’re holding money and there is a potentially useful workshop or symposium offered late in the year, do register and attend. You might also consider throwing a Christmas party for clients, prospective clients, referral sources and selected business colleagues (meaning, no one who might steal a client!). Your Christmas party could turn out to be a networking bonanza that creates billable hours for you in the coming year (and beyond).

Clients and referral sources could come away with more business as well and that will make their relationship with you more valuable to them. If you can grab a big table or a private room in a restaurant that needn’t be fancy, but has a good reputation, then plan your party with Evite, even if a Monday night is all you can reserve.  Allow 7-14 days for the RSVP—last minute invitations can be just fine. Spontaneity has its charms, especially at this time of year.

To make sure that the social swirl and networking will be effective, invite 30 and expect 12 to show. Set out five or six finger foods and arrange for a signature cocktail. If someone asks for beer or wine, let them have it. Your party can run 6:00 PM – 8:00 PM. Most people will have two drinks, the restaurant will tell you how much food to set out. You will probably spend $60/pp, meaning that a table of 12 will cost less than $750.

You might also consider inviting your Linked-In connections to a party. It would be a wonderful way to introduce your colleagues to one another and billable hours could be created as a result. You may want to make this a pizza, salad, beer and wine affair, but so what? It’s a great idea, regardless. If you have 100 connections, plan on 25 showing up.

If it’s too late to host a party this year, the cards and stamps used for the December greetings that you’ll send to clients and referral sources are tax-deductible. If you act now,  there will be time to order specially printed cards for your business (you will still add a personal message).

Thanks for reading,

Kim

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