Taxes are stressful, am I right? Especially when you are running a small business. We hear from small business owners all the time that taxes are holding them up when it comes to growing, scaling or moving forward because they just feel stuck and not sure what to do. Common questions are: How much should I pay in estimated taxes? How do I pay taxes? How can I lower my taxes?
Today we are going to touch on that question, how can I lower my taxes? There are legitimate ways that small business owners can lower their taxes without feeling like they’ve done something wrong or like they are cheating the system somehow. Working with a CPA or accounting firm is highly recommended because they can look at your individual situation and take advantage of tax deductions and credits that are already written into the tax code for you! On top of that though, here are three ways you can work on lowering those taxes throughout the year:
1. Year End Tax Planning
It’s great to plan for your taxes all throughout the year and we highly recommend that but the end of the year is a great time to start if you haven’t done anything at all yet and it’s also a great time to dig a little deeper and really start to drill down on some numbers. At the end of the year, you can really take a deep dive into what is going to be flowing in or out of your business over the next few weeks and start to project your final profit. Based on your findings and what you project to see in profit, you can start to make some adjustments. For example, if you do a projection in December and see that your profit is going to be pretty high, start to think about expenses that you can pay early or income that you can delay receiving. If you were going to make a new equipment purchase, software purchase or something else significant in the next year, consider doing it before 12/31 instead. Maybe you pay for services on a monthly basis and plan to continue that in the next year – reach out to the service provider and see if you can pay for their services in advance. On the other hand, if you are expecting a big contract to be signed or a big payment to come through that is going to increase profit, consider changing the due date to 01/01 and ask the client to pay in January instead. Lastly, look at your Accounts Receivable – if you have invoices that have been outstanding for quite some time and your collection efforts have gotten nowhere, consider going ahead and writing them off. That write off will come directly from your bottom line, therefore lowering your tax liability.
2. Open and Contribute to a Retirement Account
Small business owners have quite a few options when it comes to establishing retirement accounts and they come with pretty great tax benefits too. From IRAs to 401ks to SEP plans, you definitely have options in this area. There are limitations on each different type of account so be sure to talk to an advisor and see what makes the most sense for you and your business. Most plans can be contributed to until your tax due date but solo 401k plans do need to be established no later than 12/31 so be sure to plan ahead!
3. Deduct your Home Office
Don’t forget that your home office is a great way to claim some deductions and lower taxes. Whether you use the traditional home office deduction or abide by an Accountable Plan, both are great ways to lower your tax liability. The dedicated space you use in your home for your business can be deducted by calculating the percentage of that space based on the entire home and then applying that to expenses like your mortgage or rent, utilities, and maintenance. Talk to your CPA or tax professional about the best method for you and your business and then gather those expenses are start calculating!
Truly, there are many steps all throughout the year that you can take to lower your taxes.
Taxes start to become less stressful when you start to become proactive instead of reactive!
Take the steps now, do the research now, make changes now and you’ll find you are able to breeze through tax time a lot easier than you ever thought possible!
Looking for someone to help you navigate these rough tax waters? We can help! We offer both tax prep and tax planning. Check out our services and contact us today!