As the year draws to an end, many small business owners are reminded of the impending deadline to file tax returns and seek tax tips for small businesses. Naturally, sharp business owners are racking their brains (and their accountants') for tax tips for small business to minimize their tax burden through deductions, best practices, and the best accounting software tools.
The Internal Revenue Code is bewilderingly complex due to loopholes, deductions, exemptions, and small business technicalities that even those who study tax tips for small businesses for a lifetime may never fully master. Our tax tips for small businesses offer plenty of opportunities for small businesses to ensure they aren't paying a cent more than they owe.
Defer Receiving Income
One of the tax tips for small business of running your own business is being able to decide when you receive and acknowledge income on your books. Now, it goes without saying that you should be honest and truthful no matter what. One of the advantages of cloud-based accounting software tools is that they provide tax tools to help you manage finances and prepare for deductions and filing each year.
However, it is a well-known tax tips for small business minimizing tactic to defer year-end income until the first week or two of January. The practical effect of this tax tips for small business maneuver will be that all income received in January of any particular year will need to have taxes paid on it in April of the following year, rather than April of the same year, which would be the case if you received the income in December previous year.
Sole proprietors, LLCs, and S corporations can all utilize this year-end tax tips for small business for minimizing their upcoming tax bills.
Group Needed Expenses at Year-End
First, allow us to preface this tax tips for small business with a warning: we are not advising that you simply go hog wild at the local Office Depot, buying up supplies for no other reason than tax avoidance. Your overall goal should always be revenue and profit maximization, not tax minimization. If you're considering implementing cloud software to streamline your finances and taxes, the best time to implement accounting software is at year-end or at the end of a quarter.
Rather, we are simply pointing out the tax tips for small business of purchasing items your business justifiably needs at the end of the year can pad your deductions, allowing you to pay taxes on less income in April. The correct tax tips for small business here is to inventory what your business needs to purchase and commit to buying all or most of it before January 1st. Office supplies, bill pre-payment, furniture, travel bookings, repairs, and maintenance all qualify
Write Off Worn-Out Inventory
If your business traffics in physical inventory, great tax tips for small business is that late December is the perfect time to inventory your goods for any that have been damaged or become obsolete during the year.
An ERP Accounting system can be very advantageous for properly managing inventory, costs, and equipment and preparing for filing and maximizing deductions. Any reduction in the market value of these outmoded goods equates to more deductions for your business, of which there can never be too many. Be careful, however - many business owners try to stretch the meaning of "damaged" and "obsolete" beyond what the IRS would interpret. Considering inventory in accounting systems will help ensure you maximize deductions without risk or errors.
Contribute to Retirement Plans
Tax-exempt or tax-deferred retirement plans are one of the most potent weapons in a small business’s tax tips for small business avoidance arsenal. If late December has you scrambling for ways to make a dramatic income in a year's taxable income, tax tips for small business dictate you look no further than your company's 401(k), IRA, KEOGH, or SEP.
All of these tax tips for small business defer taxation in one way or another (with different implications for your business depending on your structure and priorities), and if you can max out your allowable yearly contribution, you will avoid paying taxes on the full amount of that income. Don't have one already? Set one up -- accountants are perfectly willing and able to accommodate such tax tips for small business late in the year, as they are fully aware of the tax tips for small business benefits.
Inventory and Deduct Allowable Auto Expenses
If your business has you on the road for work-related activities, you are entitled to deduct the costs of such travel. There are two tax tips for small business on deducting auto expenses. First tax tips for small business is the actual expense method, which mandates that you track and then deduct all your documented business-related auto expenses. Second tax tips for small business is the standard mileage rate method, where you deduct a certain amount for each mile you drive, plus all business-related tolls, parking charges, etc.
Which tax tips for small business is the best method is best for your business? Generally speaking, a newer car used mostly for business will see a larger deduction from the actual expense method. Also remember that if you use a car for business and personal activities, only the business-related usage can be lawfully deducted.
Write Off Business-Related Education
One of the most under-utilized tax deduction tips for small businesses comes in the form of work-related education expenses. If you go back to college for a management degree, for instance, or attend seminars or training to improve your marketable skills, these costs may be written off on your tax return. Note, however, that education meant to prepare you for a new job or business in which you are not working at the time of filing may not be deducted. This tax tips for small business exemption applies only to education that bolsters your prospects in current business pursuits.
Deduct Bad Debts
No business likes getting stiffed, but tax season tax tips for small business offers you the opportunity to deduct such IT costs from your taxable income. Your tax tips for small business can deduct the cost of goods you sold but were not paid for. Unfortunately, service businesses do not have this exemption - services you render but are not renumerated for are not eligible for a write-off. Documentation to save here includes e-mails between you and the deadbeat, transcripts of phone calls, and anything else that can help prove you were stiffed.
Deduct Reasonable and Appropriate Business Entertainment
Within tightly circumscribed limits, the IRS permits tax tips for small business owners to deduct some of the costs of business entertainment. The rule of thumb is that you may deduct 50% of such costs if the business is discussed while the entertainment is being enjoyed - for example, a catered meeting in your conference room.
Entertainment costs can also be deducted provided that it takes place immediately before or after a business discussion. Be advised that tax tips for small business documentation are the name of the game when it comes to entertainment deductions. If you go out for a business lunch, for instance, scribble "lunch with Randy Marsh of Entourage Group regarding affiliate marketing proposal" on the receipt to establish a paper trail.
Deduct Business Travel Expenses
A tax tips for small business we have already noted that it is prudent to book upcoming business trips before December ends to maximize SMB tax deductions. It is also worth knowing that business travel in general, at any time, may be deducted, provided the deductions pertain to strictly business-related costs of the travel in question.
As long as the business is the "primary purpose" of the trip (to quote the IRS), all costs, from a plane fare, car mileage, taxi service, hotels, food, dry cleaning, and Internet service may be deducted as a tax tips for small business. If your family accompanies you, however, only your expenses may be written off.
Deduct Interest Payments
Many tax tips for small business models involve the use of credit or debt financing on an ongoing basis. Luckily for such business owners, the associated costs may be written off in full. Cloud computing accounting software can help ensure your deductions include all interest, points, fees, and carrying charges connected to any debt financing your business utilizes to operate.
The same tax tips for small business applies to taking out personal loans and using the proceeds for business purposes. Again, accurate record-keeping is paramount. Don't allow yourself to be backed into a corner by the IRS where your only recourse tax tips for small business is verbally claiming to have incurred all the interest you claimed on the return. Document relentlessly the fact that all claimed deductions tax tips for small business were used for the business.
Make Charitable Contributions
It is sometimes a prudent tax tips for small business to make year-end charitable contributions as a way of reducing your upcoming tax bill. Partnerships, LLCs, and S corporations (which are taxed like partnerships) are eligible to donate to charity, while you claim the deduction on your return. Corporations can only deduct the value of the donation at the corporate level. Regardless of the tax tips for small business of the structure within which you operate, charitable deductions offer a relatively straightforward way of trimming your tax bill before New Years’ Day.
Write Off Applicable Taxes
Believe it or not, a valuable tax tips for small business can write off taxes incurred in day-to-day operations. The nature and extent of the tax tips for small business deductions, however, depend on the type of tax involved. Sales taxes on items purchased for day-to-day operations (like office supplies) can be deducted as part of the item's cost. Thus, a tax tips for small business can be that $50 purchase of printer paper can become a $55 deduction if you were assessed a $5 sales tax at the register.
However, a major business purchase (like a mainframe computer) must have its sales tax added to the cost basis of the item - in other tax tips for small business words, it will not be deductible in full during the year in which it was purchased. Customizing your SMB accounting software can help ensure you don't miss any deductions or write-off opportunities and simplifies filing processes each year.
Fuel taxes are separately deductible, and the employer's share of employment taxes are deductible as a business expense as well. Note that self-employment tax tips for small business are not considered business expenses (and thus are not deductible) as they are incurred by individuals.
State income taxes can be deducted on your company's federal return as an itemized deduction, while real estate tax tips for small business properties may be deducted as well.
Buy Advertising Before Year End
Great tax tips for small business owners should know is that the costs of advertising and promoting their businesses can be written off. Anything from business cards to Yellow Pages ads to pay-per-click marketing campaigns may be deducted from the company tax return, provided these costs are documented in a straightforward manner. Even indirect tax tips for small business forms of advertising count, such as sponsoring a youth sports team or adorning the side of a race car with the name of your business. Some tax tips for small business include keeping a uniform or photograph of the promotion handy in case the IRS comes knocking and you're good to go!
Document & Deduct Legal Expenses
Lawyers may be seen as a necessary evil in many industries, but you should know that the cost of using their services is generally deductible tax tips for small business. If you are sued or need legal assistance in routine matters like incorporating or drafting contracts, your legal bill can translate to paying taxes on that much less corporate income. As a tax tips for small business, be sure to save any invoices, bills, and other materials about your legal bills to minimize headaches in the event your tax tips for small business deductions are challenged.
Properly handling deductions can help your small business flourish and the best accounting software is designed to help companies properly manage finances, maximize deductions, and properly file taxes.
