Think before you prepay next year’s expenses

A common end-of-year tax saving strategy for agency owners is prepaying next year’s expenses. This effectively sacrifices a bit of cash now in exchange for some accelerated deductions.

This strategy can be a good way to reduce your tax burden, but it’s important to consider the potential drawbacks.

Getting the extra deduction this year means spending actual cash. You might need that cash within the next year. If you can’t afford the cash, or don’t want to give it up, then you shouldn’t prepay.

Put another way: You can’t have your cash and spend it too.

That might sound intuitive, but it’s easy to get swept up in a tax saving frenzy and forget it.

And remember, if you expect to grow your income next year, you might be better off paying more tax this year and saving those deductions for next year.

So let me know…

Are you considering prepaying expenses to save on taxes?

If so, have you crunched the numbers to support your strategy?

Hit REPLY and tell me about it!