As the year draws to a close, there are some tax-saving strategies small business owners can take advantage of. To help you get the ball rolling before the new year, utilize these tips.
Don’t Wait Until the Last Minute
We all procrastinate at some point or another. But when it comes to year-end tax planning, the last thing you want to do is put it off until the last minute. And for small business owners, time will fly during these last few months of the year. The earlier you start, the better off you will be.
To avoid putting off this task, set aside time each week in your schedule (perhaps in November) to sit down and figure things out. Then, you can check off one or two tasks during each time. This will help make it not too overwhelming and ensure you get everything done before the new year.
Your income tax is charged based on the amount of income you made during the previous calendar year. So income earned on December 31 counts for the previous year. However, income earned on January 1 can be logged for the upcoming year’s taxes.
If you’re hoping to lower your tax burden in April, consider deferring some income until the next calendar year. You could do this by delaying sending invoices or extending the due date on invoices until the new year. This one can be a little tricky, so talk to your tax advisor to determine if it’s worth it to do this.
Determine What Tax Deductions You’re Eligible for
It’s also a good time to find out which tax deductions you’re eligible for before the year is out. Tax deductions are a great way to lower your tax liability, and knowing the deductions that apply to your business and how to correctly deduct them can save you time later.
Some common small business tax deductions include:
- Home office
- Travel expenses
- Employee expenses
- Business use of a car
Above all, it’s important you ensure you qualify for the tax deduction before claiming it and follow the IRS’s rules. You don’t want to get in trouble with the IRS because you didn’t actually qualify for a tax deduction you claimed. And if you do qualify for a business tax deduction and take advantage of it, keep accurate records to prove your deductions are for business expenses.
Make Necessary Purchases
To help maximize deductions for your small business, spend money on items your business needs before the year comes to an end.
Some tax-deductible things you may want to purchase can include office supplies, equipment, machinery, or a company vehicle. So think about what kind of items you truly need to purchase before the year-end.
Set Up a Retirement Plan
Another option for small business owners is to establish and fully fund a retirement plan. Establishing or contributing to a retirement account can help reduce your taxable income.
There are different types of retirement plans small business owners can choose from. These include:
Every business’s tax situation is different, so it’s crucial to do the research necessary before establishing a retirement plan for your business. This is because each type of plan differs in the due date for setting up and contributing to the plan, contribution maximums, and other requirements.
Consider Changing Your Business Structure
Restructuring your small business can also lead to significant tax savings. If you’re a sole proprietor, choosing a different business entity could be better. Before diving head first into changing things up, read up about the business entity types and find a structure that works best for your business. Each type of entity has different requirements for set-up and switching, and talking to your tax advisor can help you decide which is most advantageous for your business.
Donate to Charity
Not only is donating to charity a noble and important act, but it can also help reduce your taxable income. By donating to charity, you can better your small business’s finances. Just make sure to keep receipts and other documentation to back up your deductions for tax time.
Hire a Tax Professional
Making sure your taxes are good to go before the year-end can be confusing and overwhelming. To ensure your ducks are in a row and your questions are answered, hire a tax professional before the year comes to a close.
Tax professionals are a great resource for small business owners. They stay up to date with ever-changing tax laws, can put strategies into place to help lower liabilities, and answer all your questions. They can also help you steer clear of mistakes on your tax return when the time comes, allowing you to avoid headaches and financial problems down the road. Just remember to give yourself a good amount of time to meet and talk with a tax advisor – they’re busy at year-end, too.
If you’re a small business owner who’s ready to get your taxes in order before the new year, Gaylor Tax Services is here to help.
Gaylor Tax Services is Here to Help
If you’re a small business owner who’s ready to get your taxes in order before the new year, we’re here to help. At Gaylor Tax Services, we can assist you with tax compliance, tax filing, tax planning, and even support you in case of an audit. Our experts are here to answer your questions year-round, so do not hesitate to contact us. We are located in Phoenix, Arizona, but can assist you anywhere in the state.