Books, payroll and the year

The December list, and why most of it should have happened in June

Somebody sends round a list of year end tax moves, and the scramble starts. Equipment gets bought in the last fortnight, invoices get held back, and everybody feels productive.

Some of that work is real. Most of it is a reaction to a year that has already decided most of its own outcome, performed in the four weeks when the least is available.

The scramble is not useless. It is just the smallest part of the job, done under the worst conditions, by people who are also trying to close the year and take a break.

The misconception

That December is when tax planning happens. It is when tax planning is visible, which is a different thing. It is the month the subject is discussed, so it becomes the month people associate with the work.

Planning happened, or did not happen, across the preceding eleven months, in decisions that were not framed as tax decisions at the time.

What is still open, and what closed

Start with what closed. Entity structure, for practical purposes, since changing how a business is taxed generally takes effect from a point that is not the day you decide. How you paid yourself across the year, since a reasonable salary is established by payroll actually run over time rather than by a single payment in the last week. Whether reimbursements were made under a proper arrangement, since that depends on submissions made through the year. Whether a property was studied before it was placed in service. Whether the records supporting anything exist, and were made when they should have been made.

By December the question is no longer what to do. It is what is left.

What is still open is narrower and it is real. Timing of income where you control invoicing and collection. Timing of deductible costs you were going to incur anyway. Some retirement decisions, with the important caveat that adoption and funding have different deadlines and neither is the filing date. Charitable giving, provided the transfer completes rather than being merely instructed. Realising losses or gains in an investment account. Making sure estimates and withholding are where they need to be for the year.

Notice the character of that list. It is mostly moving the date on something already decided. It is not changing the shape of the year.

The number

As a range, a competent December review on a year with no prior planning typically recovers a small share of what a planned year would have produced. Where the business had structural opportunities that needed months to put in place, the share is smaller still. Where the only available moves were timing ones anyway, December can capture most of it.

One warning that belongs here. Buying equipment in December to reduce tax is only sensible where the equipment was needed. Spending money to avoid a fraction of it in tax leaves the business with less cash and an asset it did not want. The tax effect is a discount on a purchase, never a reason for one.

Deduction limits, phase downs and the rules on which costs qualify are adjusted and change over time, so last December's list should not be reused without checking it.

What this requires

• A projection by mid year, so the size of the year is known while there is time to respond to it.
• A second look in early autumn, when the figure is firmer and there is still a quarter left.
• Decisions implemented with enough lead time that documents, filings and transfers complete before the year ends.
• A December review that confirms and finishes rather than one that starts.

Mid year is the date that does the work. It is far enough in to know what the year is, and far enough out to act on it.

Who this is not for

Nobody is excluded here, so use this for the short list of things that genuinely can still be done late, since the rest of the article is about what cannot.

Adjusting withholding. This is the most underrated late move available. Amounts withheld are generally treated as spread across the year, so increasing withholding in the final months can repair an underpayment position that a late estimate cannot.

Paying deductible costs you had already committed to. Bringing forward a genuine cost is legitimate and simple.

Delaying an invoice, where the work and the relationship allow it and you are not simply damaging your own cash position to move a number.

Charitable transfers, provided you start early enough that anything other than cash has time to move.

Reviewing an investment account for losses that can be realised against gains, with attention to the rules on repurchasing.

And confirming retirement deadlines, since a few arrangements remain open later than people assume and one of them may still be available.

When this happens

June, then September, then a short December confirmation. That is the shape of a year that is being managed rather than reported.

The December meeting in that pattern is brief and dull, which is the sign it went well. Nothing is being discovered because everything was already known.

The point

The December list is what remains after eleven months of decisions. Working it hard is worthwhile and it is not planning.

Planning is the mid year conversation that makes December uneventful. Your Charter team runs the year on that rhythm rather than on the scramble.

This is general information, not advice on your own situation. Whether any of it applies to you depends on facts this article does not know.