Those who make quarterly tax payments should know that a payment is due September 15.  This is because of the end of the Federal fiscal year on September 30th.  This is also a significant time for short-range planning. 

We will soon be entering the fourth quarter.  This is the quarter before the end of the year.  This is when a business’s purchasing decisions can most significantly impact the tax reporting for the year.  Let’s look at an example.

ABC Manufacturing needs a new piece of equipment.  It is expensive but will increase efficiency and greatly enhance the profit margin.  ABC Manufacturing can buy the new equipment in December or January.  The question is which month and why does it matter.  To answer the question, we must look at the profit and loss statement for the year to date.

Buying the equipment now will reduce taxable income this tax year.  Waiting until next year will postpone the deduction. If we suppose this year’s profit appears to be very strong, but next year’s profit will be much higher, we would recommend waiting until January and take the deduction next year. This would temper the profits next year while reporting the profit from this year.

This is one example of what can be very complicated planning.  I would never suggest that taxes are the only considerations for business decisions, but they are important especially at this time of year.  The business owner is the ultimate decision maker.  To make important long range planning decisions, a wise owner will seek the advice of trusted advisors.  Financial planning, especially tax planning is a great way to remove at least some of the uncertainties of the business owner faces on a daily basis.

Are businesses the only taxpayers that should do tax planning in the fourth quarter?  Absolutely not! Retirees and people who live on investments also need to look at their financial picture during this quarter.  Certain retirement accounts such as IRAs have mandatory withdrawal provisions with high tax penalties for failure to make withdrawals on time. 

An annual review of the financial position of either a retirement account or an investment portfolio will give the owner a good idea of how long funds will last at the current rate of spending and growth.  With this sort of review, the person depending on those funds will be able to make decisions that will help ensure the money doesn’t runout too soon.

Take some time to consult a professional who understands tax laws as well as your goals.  As the old axiom goes, those who fail to plan, plan to fail.  Don’t be that person.