Year-End Tax Optimization: What Puerto Rico Business Owners Must Do Before December 31
For business owners in Puerto Rico, December is not simply the end of the fiscal year—it’s the month that determines your company’s tax exposure, liquidity, and financial stability for the year ahead. The decisions you make in the last 30 days of the year have a direct impact on how efficiently your business enters the next fiscal cycle.
At JBM Accounting & Advisory Group, we work with business owners and CFOs who understand that year-end is not an accounting formality; it is a strategic opportunity. This guide outlines the key year-end tax optimization steps you should consider before December 31.
1. Start With Accurate Numbers: Complete Your Reconciliations Early
Year-end tax planning is only as strong as the data behind it. Before you make any tax-related decisions, you need clean, reconciled numbers.
Key reconciliations to finalize
Make sure the following accounts are fully reconciled up to at least November 30, and ideally through December 31:
- Bank accounts (operating, savings, payroll, tax accounts)
- Credit cards
- Digital payment platforms (Stripe, PayPal, ATH Business, Square, etc.)
- Accounts receivable (AR) and accounts payable (AP)
- Loans and lines of credit
- Merchant accounts and payment processors
Why it matters:
Hacienda’s electronic systems increasingly cross-check data between your IVU reports, municipal patent filings, and income tax returns. If your numbers are based on unreconciled accounts, you significantly increase your risk of discrepancies, compliance notices, or audits.
Puerto Rico-specific requirement: Companies with business volumes exceeding $3 million must submit audited financial statements with their corporate income tax returns. These statements must be prepared under U.S. GAAP by a CPA licensed in Puerto Rico, making accurate reconciliations critical for audit preparation.
2. Match Your IVU Reports With Your Financial Statements
Hacienda’s digital enforcement systems (SURI) are increasingly sophisticated at detecting inconsistencies between:
- Monthly IVU (Sales and Use Tax) returns
- Gross revenue reported in financial statements
- Form 480.6 series (informational returns)
- Municipal patent (Patente Municipal) filings
- Corporate income tax returns
Even small discrepancies between IVU and sales reported in your accounting system can trigger automated reviews and penalties.
Year-end IVU checklist:
✓ Confirm taxable vs. exempt sales classification
✓ Verify that IVU collected equals IVU remitted through SURI
✓ Review credits, adjustments, and exemptions taken during the year
✓ Compare IVU filings to your profit and loss report and municipal patent base
✓ Reconcile digital payment platforms with IVU reports (ATH Móvil Business, etc.)
If you detect inconsistencies, address them before year-end to avoid penalties and correction notices in Q1 2026.
3. Consider Strategic Year-End Expenditures
December is an ideal month for strategic spending—not to inflate expenses arbitrarily, but to bring forward legitimate, necessary investments that also provide tax benefits under Puerto Rico’s tax code.
Examples of strategic year-end expenses:
- Technology upgrades (hardware, software, cybersecurity systems)
- Professional services (legal, consulting, advisory, tax planning)
- Repairs and maintenance needed in early 2026
- Equipment and machinery your business already plans to acquire
- Training and development for key personnel
- Renewable energy investments (solar panels, battery storage – eligible for federal and local tax credits)
Puerto Rico advantage: Under Act 60 (Incentives Code), certain capital investments may qualify for additional tax benefits, particularly for manufacturing businesses and export service companies.
By planning these expenditures with your accountant, you can optimize deductions for 2025 while strengthening your operations for 2026.
4. Reevaluate Your Corporate Structure Under Act 60 and Current Tax Landscape
Many businesses in Puerto Rico still operate under a structure chosen years ago—often when the company was smaller, less complex, or in a different industry stage.
Critical questions for 2025 year-end review:
Act 60 Optimization:
- Are you currently benefiting from Act 60 tax decrees?
- Do you qualify for export services incentives (4% corporate tax rate)?
- Should you separate export vs. local operations into different entities?
- Is your Act 60 decree compliance up to date for renewal?
Entity Structure:
- Does your current entity type (corporation, LLC, partnership, etc.) still make sense?
- Are distributions, salaries, and retained earnings managed efficiently from a tax standpoint?
- Is your structure exposing you to unnecessary municipal or property tax burdens?
Sourcing and Compliance:
- Are you properly documenting where services are performed (critical for Act 60 export services)?
- Do you maintain travel logs and service location records for IRS compliance?
- Are you meeting the physical presence requirements for any tax incentive programs?
Important note: The IRS has significantly increased scrutiny of Act 60 beneficiaries in 2024-2025. Proper documentation of bona fide residency (183+ days in Puerto Rico) and service sourcing is now more critical than ever to avoid audits and penalties.
Year-end is a smart time to make decisions about reorganizing or restructuring for January 1. These changes can’t be retroactive, so planning ahead is critical.
5. Review Compliance Obligations: Municipal, Property, and Federal
A comprehensive year-end tax optimization plan in Puerto Rico goes beyond income taxes.
Municipal patent (Patente Municipal):
✓ Validate that gross receipts used as the base are correct
✓ Confirm adjustments and exclusions are properly documented
✓ Ensure your business classification still reflects your current activity
✓ Review any Act 60 municipal license tax exemptions (50% or 100% depending on business volume)
CRIM and property-related obligations:
✓ Review your AS-29 (personal property declaration)
✓ Confirm that assets and depreciations are aligned with accounting records
✓ Check whether property classifications and exemptions are up to date
✓ For Act 60 decree holders: verify 75% or 100% property tax exemption status
BOI (Beneficial Ownership Information) – UPDATED FOR 2025:
CRITICAL UPDATE: As of March 2025, FinCEN has exempted all U.S. domestic companies (including Puerto Rico entities) from BOI reporting requirements. Puerto Rico corporations and LLCs no longer need to file BOI reports with FinCEN.
Exception: Only foreign entities registered to do business in Puerto Rico must file BOI by April 25, 2025.
This represents a significant compliance relief for Puerto Rico businesses that were previously subject to BOI filing requirements.
6. Build a Q1 2026 Tax and Cash Flow Roadmap
The first quarter of the year is often the most demanding from a tax and cash perspective. A forward-looking plan can prevent surprises.
Include in your Q1 2026 roadmap:
Puerto Rico-specific obligations:
- CRIM payments (February and May installments)
- Municipal patent renewals and quarterly payments
- Estimated tax payments to Hacienda (if required)
- IVU monthly filings (due by the 20th of each month)
- Form 480 series informational returns (various deadlines)
- Payroll withholdings and quarterly reports
Act 60 decree holders:
- Annual compliance reports to DDEC (Department of Economic Development and Commerce)
- $10,000 minimum annual charitable donation (for individual investors under Chapter 2)
- Purchase real property requirement verification (within 2 years of decree grant)
- Export services documentation and percentage calculations
Cash flow considerations:
- Expected vendor and loan payments
- Seasonal slowdowns in collections (if applicable to your industry)
- Property tax installments
- Insurance renewals
A 90-day rolling cash flow forecast can help your management team make informed decisions and protect your liquidity during Puerto Rico’s typically slower Q1 period.
7. Ensure U.S. GAAP Compliance for Financial Reporting
Puerto Rico businesses must comply with U.S. Generally Accepted Accounting Principles (GAAP) for financial reporting—not IFRS. As regulatory scrutiny increases through Hacienda’s modernization efforts, companies need to ensure their accounting systems and internal controls meet these standards.
Key U.S. GAAP considerations for year-end:
Revenue Recognition (ASC 606):
- Proper timing of revenue recognition
- Performance obligations documentation
- Contract modifications and variable consideration
Lease Accounting (ASC 842):
- Right-of-use assets and lease liabilities properly recorded
- Operating vs. finance lease classifications
- Disclosure requirements met
Financial Statement Presentation:
- Proper classification of assets and liabilities
- Adequate disclosure notes
- Related party transactions clearly identified
Puerto Rico-specific audit requirements:
- Business volume $3M – $10M: Balance sheet certified by PR-licensed CPA OR financial statements prepared under U.S. GAAP
- Business volume $10M+: Full audited financial statements required with income tax return
- Act 60 decree holders: Often require audited financials regardless of volume (per decree terms)
Action step: Work with your accounting team to review current policies and ensure full GAAP compliance before year-end audit preparation begins. This is particularly critical if you’re approaching the $3M or $10M thresholds.
Conclusion: Year-End Tax Optimization Is a Strategic Advantage
Year-end tax optimization is not about last-minute reactions; it’s about using the final weeks of the year to align your tax position, cash flow, and compliance with your long-term strategy.
Businesses that approach December with a structured plan are better positioned to:
✓ Reduce unnecessary tax burdens through strategic planning
✓ Improve liquidity and cash flow management
✓ Mitigate compliance risk with Hacienda, CRIM, and municipalities
✓ Present cleaner, more accurate financial statements
✓ Maximize Act 60 benefits while maintaining IRS compliance
✓ Enter 2026 with clarity and control
If you’d like expert guidance navigating your year-end closing and tax optimization, our team at JBM Accounting & Advisory Group can support you through the entire process—from reconciliations and compliance reviews to strategic planning for 2026.
Ready to optimize your year-end tax position?
Contact JBM Accounting & Advisory Group to schedule a strategic year-end review.
📞 (787) 202-4505
📧 info@jbmaccounting.com
🌐 https://jbmaccountingfirm.com
