Moving Words – Tax and Insurance Review
Timothy Brady
“The U.S. tax code was written by A students. Every April 15, we have to pay somebody who got an A in accounting to keep ourselves from being sent to jail.” – P. J. O’Rourke
It’s that time of year again, and it’s not something that needs to wait until after January 1, 2025. It’s time for that annual business insurance and tax check-up – much like the annual physical for which many of us go to the doctor. The purpose of your business insurance and tax checkup is to investigate how your company can save on taxes and ensure your business risks are reasonable and affordable.
Number One: Before the year’s end, it’s extremely important to review your business tax strategy. Sit down with your CPA/tax preparer and look at adjusting taxable earnings for 2024. This could be accomplished by accelerating expenses or delaying income at year-end. If you’re a cash-basis taxpayer, you could boost deductions by declaring and paying bonuses in December rather than in early January. Look at having that major repair done before year’s end. Same with having new tires put on your equipment the first quarter of 2025; it might save you a bundle in taxes to purchase and pay for those tires before year’s end. Also, you may be able to defer invoicing so that big payment doesn’t arrive until after January 1, 2025; therefore not adding it to your 2024 taxable revenue.
Look into the “Section 179″ rule that allows you to take an immediate tax deduction for most purchases of business equipment. By deducting the full cost immediately instead of depreciating it over several years, you’ll cut this year’s tax bill. Or it might be time to make that big-ticket purchase of those much-needed trailers so you can get that first-year depreciation on your 2024 tax return.
This is also a suitable time of year to make sure you’re using the most appropriate form of business — whether it’s sole proprietor, S or C corporation, LLC, or partnership. The end of your business’s tax year is the best time to make the transition to a new form of business entity. Have your CPA explain any recent changes to the tax laws that will affect you and your business, as well as the best strategy for where those changes will have the lowest impact on your taxes. And you may be able to take advantage of other strategies to reduce your tax bite as well.
Number Two: Review your business insurance coverage. Risks change each time you add or remove a piece of equipment, expand or reduce the areas you service and the number of employees and/or contractors you have. Have you added a new warehouse or office in another state? What are the insurance requirements for auto liability or Workers Compensation Insurance in the new state? All these questions (along with many others) need to be asked several times a year. Ask them first when an insurance policy is up for renewal; then any time your risk environment changes by adding or subtracting personnel and equipment or adding locations, and then at year’s end to make sure you’re moving into the new year with the right level of insurance coverage. Don’t just automatically write a check to renew your insurance policies when they come due. Instead, sit down with your insurance agent every year to review your business operations, focusing on any changes. Discuss types of risk that could arise. Ask about new developments in business insurance. Use your agent’s expertise to identify risk areas and suggest suitable coverage.
Reviewing these two critical areas can cost you significantly if ignored. Consider taking the time to review as investing that time in the last quarter of each year.
“Insurance – an ingenious modern game of chance in which the player is permitted to enjoy the comfortable conviction that he is beating the man who keeps the table.” – Ambrose Bierce
