Small business owners who engage in proactive planning can take some of the “bite” out of their taxes. Here are some simple strategies for you to consider that require action before the year’s end.

Defer Income and Accelerate Deductible Expenses (or Vice Versa)

If your business is a sole proprietorship, partnership, limited liability company or S corporation, your share of the business’s income is reported on your Form 1040 and taxed at your personal rate.

The individual federal income tax rates are scheduled to be the same for 2016 as they are for 2015. Therefore, deferring revenue into 2016 while accelerating deductible expenses into 2015 makes sense if you expect to be in the same or a lower tax bracket next year.

But if you expect to be in a higher tax bracket in 2016 take the opposite approach. If possible, accelerate revenue into 2015 and postpone deductible expenses until 2016. That way, more income will be taxed at this year’s lower effective marginal tax rate.

How to Juggle Income and Expenses (for Cash-Basis Entities)

The cash method of accounting gives you flexibility to manage your 2015 and 2016 taxable income to minimize taxes over a two-year period. If you expect business income to be taxed at the same or lower rate next year, here are a few strategies.

Before year-end, use credit cards to pay recurring expenses that you would otherwise pay early next year. Charges are deductible in 2015 even though the credit card bills won’t be paid until next year. (However, you can’t deduct business expenses charged to any retailer accounts until you pay the bill.)

Another trick is to pay expenses with checks and mail them a few days before year-end. Cash-basis entities can deduct the expenses in the year checks are mailed. For big-ticket expenses, send checks via registered or certified mail to prove they were mailed in 2015.

You may prepay some expenses for next year, as long as the economic benefit from the prepayment doesn’t extend beyond the earlier of: 12 months after the first date on which your business realizes the benefit, or the end of 2016

Generally, cash-basis taxpayers don’t have to report revenue until the year they receive cash or checks in hand or through the mail. You may put off sending out some invoices for work completed in late December so that you won’t get paid until early next year

If you expect to pay a significantly higher tax rate on next year’s business income, try the reverse of these strategies to raise this year’s taxable income and lower next year’s.

Take Advantage of NOLs

These business tax-planning strategies also can be used to create (or increase) a 2015 net operating loss (NOL). For more on how to handle NOLs, see our previous blog.

Meet with Your Tax Adviser

These strategies only scratch the surface of proactive tax planning moves.

PDM’s tax experts can help advise you on the best course of action. Contact us; with our years of technical experience, advanced training, and cutting edge technology, we are your financial partner.