By deferring net taxable income to a later year, you may be able to reduce your current tax liability. You can reduce your taxable income in one of two ways: You can either defer income to next year or you can accelerate deductions into the current year. Here are two timing strategies that can help your business defer net taxable income:
These strategies work best for transactions occurring near year-end, since the deferral of income will also result in your delaying the receipt of cash receipts until the next calendar year and the prepayment of expenses accelerating cash payments into the current calendar year.
However, if you think you’ll be in a higher tax bracket next year (or you expect tax rates to go up), consider taking the opposite approach instead — accelerating income and deferring deductible expenses. This will increase your tax bill this year but can save you tax over the two-year period.
These are only some of the nuances to consider. Please contact me at HZemel@BerdonLLP.com or your Berdon advisor to discuss what timing strategies will work to your tax advantage, based on your specific situation.
Hal Zemel, a Tax Principal at Berdon LLP, has more than 20 years in public accounting and advises businesses in the real estate, service, and manufacturing sectors.