It’s that time of year again. Time for Santa Claus to start thinking about his tax return for the new year. Here are some items to help Santa minimize his tax bill for 2016.
1. Stock up on demos or mall displays – Setting up in all of those shopping malls requires a lot of displays and other items. Demo sets, display items or anything you use for your business is 100% tax deductible as a necessary business expense. If you need any additional demo or display sets, purchase them before the end of the year to receive a tax deduction this year. However, according to the IRS they must be IN USE by the end of the year to be included in the current year deductions.
2. Stock up on supplies, candy and reindeer food – Santa gives out a lot of candy. His accounting department up north also uses a lot of office supplies. Think ahead and purchase enough supplies to last a while. You’re going to use them anyway.
3. Purchase any toy making equipment you need – Making and moving all of those toys around requires a lot of equipment. Santa can minimize his tax bill by purchasing any equipment that he is going to need in the near future. Now may also be the time to purchase that new printer or that new desk. With the Section 179 deduction you can write off the entire amount in the year you purchase it instead of depreciating it over several years. Make sure you put it IN USE by the end of the year to receive the deduction.
4. Donate to charity – Well, Santa certainly does his share of giving. But, unfortunately, most of his giving isn’t tax deductible (some is, see #5). Sorry, Santa. In order to get a tax deduction for charitable giving you have to give to a qualified tax exempt organization. But, donating to charity can help you in more ways than one. Not only will you help the needy, but you may be able to significantly decrease your taxable income as well.
5. Give Gifts – You can deduct $25 for each business gift you give. However, promotional items you give away are 100% deductible as a marketing/advertising expense.
6. Take a business trip at the end of the year – Ummm, this seems to come naturally for Santa.
7. Pay your elves or kids to work for you – Yes, you can deduct what you pay your kids or elves. And, they won’t have to pay federal income taxes on it if the amount is less that $6,300 for the year. This is because the standard deduction for 2016 for dependent children is $6,300. I’m not sure how much Santa pays his elves. I’ve heard he’s being sued for violating labor laws. He’s also under investigation by the IRS for not reporting elves living expenses as payroll.
8. Pay your bills early – By paying your bills before the end of the year you’ll likely be able to deduct the expenses this year. In the past, Santa has been so busy during the holiday season that he forgets to do this. But, he needs to stop taking off the week between Christmas and New Year’s and pay his bills so he can deduct them in the current year.
9. Do any deferred maintenance on your sleigh – Go ahead and make any repairs needed to your equipment so that you can deduct the cost this year.
10. Give away your inventory – Giving away inventory to promote your business creates a nice tax deduction because it increases your Cost of Goods Sold (COGS). So ahead and give away your inventory, especially old inventory that has been sitting around for a while. Santa does this every year.
11. Pay your mortgage or rent early – Santa can get an extra tax deduction by paying January’s mortgage early. He can can also pay January’s rent on the Work Shop early and deduct that on his business return this year. But, just remember, if you choose to do either of these you’ll need to keep doing it every year or you’ll end up with just 11 months of tax deductions the following year.
12. Defer Income If Possible – If you have a business where you can control the timing of billing, wait a couple of weeks to invoice your clients. Payments received after December 31st will be considered income for the following year. This is especially nice if you have a business that does large jobs, like a contractor.
13. Advertise – Depending on your business, December might be a great time to advertise. This is especially true for my tax business, for example. As you know, with advertising you spend money now and reap the rewards later. So, advertising at the end of the year is great because you get the deduction in the current year but reap the income benefits in the following year.
Hopefully Santa will take heed and reduce his tax bill come April by implementing some of these tax tips into his business. Or, maybe you can too!
*Please note that these tax tips are intended for businesses operating under the “Cash Basis” of accounting. If you operate under the “Accrual Basis” then some of them may not be appropriate for your business. If you are unsure, then you probably operate under the “Cash Basis”.