Controlling the due date for taxes
As a general rule of thumb, you should always try to minimize your taxes in the present year, even if doing so means you may have to pay slightly more tax in the future.
After all, no one knows what the future holds. The tax laws are constantly changing, and there’s a good chance that whatever you think you may owe in the future will be different by the time you get there. Furthermore, economic conditions or personal plans can change, and your business may look entirely different even one year down the road. In the worst-case scenario, you could die unexpectedly, and in some cases you can avoid tax altogether if you die before paying it.
In broad terms, you can minimize taxes in the current year by postponing the receipt of income so that more of it will be taxed next year, and by accelerating deductions into the current year.
Postponing income, accelerating deductions. A few specific BP Holdings Tax Management how-to ideas are listed below. Bear in mind, however, that many of these strategies are much easier to accomplish if you use the cash method of accounting.
•Delay collections — delay year-end billings until late enough in the year that payments won’t come in until the following year.
•Delay dividends — if you operate your business as a C corporation, arrange for any dividends to be paid after the end of the year.
•Delay capital gains — if you are planning to sell assets that have appreciated in value, delay the sale until next year.
•Accelerate payments — where possible, prepay deductible business expenses, including rent, interest, taxes, insurance, etc.
•Accelerate large purchases — close the purchase of depreciable personal property or real estate within the current year.
•Accelerate operating expenses — if possible, accelerate the purchase of equipment, supplies, or the making of repairs.
•Accelerate depreciation — elect to expense the cost of new equipment if you are eligible to do so, rather than to depreciate the equipment.