It’s hard to believe, but we’re down to the last couple of weeks of the year. And if you’re anything like most shop owners I work with, this is when tax planning really starts to feel real. The good news? You still have time to make smart moves that can lower your tax bill and set you up better for next year.
First, let’s talk about my favorite tax deduction—retirement contributions. I know, I know… it’s not as exciting as buying new equipment or toys for the shop. But this is one of the rare deductions where you’re actually putting money into your own pocket. When you contribute to a Simple IRA or 401(k), you’re not just reducing taxes—you’re building your future.
Here’s the part people miss: putting money into retirement can actually generate cash. If you put $10,000 into a pre-tax retirement account, you might save around $2,500 in taxes. That’s real money back in your pocket. Just remember, those contributions have to go through payroll and be completed by December 31. Miss that window, and the deduction is gone.
End-of-Year Tax Traps: Mistakes That Cost Shop Owners Thousands [E201]
Are you leaving money on the table before the tax year closes? In this end-of-year episode of Business by the Numbers, Hunt Demarest, CPA with Paar Melis & Associates, walks through the essential tax moves shop owners must make before December 31st and the costly assumptions that lead many to overpay the IRS. Listen to the episode.
If you’re not in a position to max out a Simple IRA or 401(k), that’s okay. A traditional IRA is still a solid option—and the nice thing there is you don’t have to decide in the next two weeks. You can wait until tax time and see what makes sense. Roth IRAs are great long-term tools too, but they’re not tax deductions, so this usually isn’t the time of year I focus on them.
Another big one I love is the HSA. If you have an HSA-eligible health plan, this is a no-brainer. You get a tax deduction going in, and the money can be used tax-free for medical expenses. Even if you’re healthy, setting one up and putting something in it starts the clock—and that matters more than people realize.
Now let’s talk about buying stuff. Shop owners love deductions tied to purchases, and that’s fine—just do it with your eyes open. Whether you pay cash or finance equipment, vehicles, or improvements, you often get the full write-off in the first year. Leases are different, especially with vehicles, so make sure you understand how that works before pulling the trigger.
Beyond deductions, this is also the time to clean up your financials. Inventory, accounts receivable, and accounts payable matter—a lot. Too much inventory on the books means you’re paying tax on money you haven’t really spent. Old receivables that will never be collected? Write them off. Bills incurred in December but paid in January? Make sure they’re recorded properly so you don’t miss deductions.
Finally, please don’t bonus yourself just to bonus yourself—especially if you’re an S-Corp. That usually costs you more in payroll taxes without saving anything on income taxes. The exception is when it’s tied directly to retirement contributions.
A little planning now can save you a lot of stress—and money—later. Get your numbers tight, talk with your accountant, and finish the year strong. You’ll thank yourself when tax season rolls around.
ABOUT THE AUTHOR – Hunt Demarest, CPA, is a Partner at Paar Melis & Associates and a leading financial expert in the auto repair industry. As host of the Business by the Numbers podcast and a published author of Beyond the Bays, he educates auto shop owners on how to improve profitability and cash flow through proactive tax planning and practical financial insights.