Taxes are an important part of managing a business, but no one wants to spend more time (or money!) on them than necessary. Effective tax planning reduces the amount of taxes your company pays, increasing your bottom line.
Below we’ve compiled some top tips to help your business plan for tax time.
1. Take advantage of tax-deferred retirement plans
The beauty of retirement plans is they allow business owners to claim a deduction without having to actually pay the taxes. The money needs to be kept in an account until certain requirements are met, but any interest earned on the funds is tax deductible until the money is withdrawn.
2. Register as an LLC
Many businesses are so small that they don’t even consider themselves a business. An individual who does freelance work or sells goods is still conducting business, and should register as one. Forming an LLC not only helps sole proprietors protect their personal finances, it can also help alleviate the self-employment tax and provide other tax benefits.
3. Deduct the price of equipment and software
Businesses can deduct the full purchase price of equipment or software in the year it was purchased, up to $1,000,000. If your business is considering buying new equipment or software and it’s approaching year-end, consider buying now so you can claim the deduction this year.
4. Do your homework on tax law
The Tax Cuts and Jobs Act was the largest tax overhaul in 30 years and had a major impact on businesses and individuals. Even though bills like the TCJA don’t happen every year, tax code changes do occur and it’s important to track how they might help – or hurt – your business. Stay updated on financial reporting to make sure you aren’t missing any savings opportunities.
5. Take a deduction on your home office
If you work from home, you can claim the costs for your home office in your tax deduction. To qualify, your home office needs to meet a few requirements: it can only be used for conducting business, and it needs to be your principle place of business. If your home office meets these qualifications, you can deduct some of the cost for things like rent and utilities.
6. Cash in on leftover inventory
If you have a C corporation that sells goods you may be able to take advantage of Section 170(e)(3). This deduction allows corporations with leftover inventory, like surplus or obsolete goods, to claim a tax deduction on those items. This allows businesses to still profit on those unsellable items and remove them from their warehouse, ideally by donating them.
7. Hire independent contractors instead of full-time employees
Unlike full-time employees, you don’t have to worry about paying payroll taxes for independent contractors. You also don’t have to worry about paying benefits like health insurance, retirement or vacation. You can hire independent contractors for specific projects or limited time periods, meaning you won’t need to pay them when you don’t need work completed.
To learn more about how your business can benefit at tax time, contact our team of tax professionals at Patin and Associates today.