Most people wait until the end of the year to plan for the upcoming tax year. Others wait until the new tax year arrives. Some wait years to file their tax returns. We are sharing some valuable small business tax tips you should be aware of. Click here to read or watch more IRS Help resources.
Planning ahead during mid-year makes sense because it allows the individual to reduce stress and taxes at tax time. If you own a small business, there are some smart things you can do to keep on top of things.
One of our first small business tax tips is: Keep great records.
As a small business owner, you should already be keeping a close eye on expenses, deposits, and income. If not, it is never too late to start. Make sure to keep your business and personal checking accounts separate. When tax time comes around and you have to fill in questionable records, you may end up paying more taxes than you actually owe.
Compare profit and loss statements for the first six months of the year.
Compared to last year, is your business growing or stagnant. You can always estimate your taxes and send in payments. This might help you avoid penalties down the line.
Keep an eye on your personal expenses.
As a sole proprietorship, LLC, S corporation, or partnership; outside financial actions could affect your taxes. An example would be buying or selling a home. Those small expenses can add up and put money back in your pockets. Substantiate your deductions by the records you keep.
Do the most logical thing and hire a professional to keep an eye on the books.
Running a business can be time-consuming, and it is easy to drop the ball. You can hire a tax expert to provide as little or as much help as you need. The experts know how to spot areas for tax deductions.
Here are some more valuable small business tax tips that can help keep your head above the water:
Boost Your Inventory of Depreciable Equipment
If the price is right, do not hesitate to purchase equipment your company needs. Your tax expert can offer advice on deductions for business equipment under current law and help you maximize deductions. If Congress has approved any extensions. They will know about these things.
Invest Savings in Your Own Retirement
Make sure you have a generous retirement plan in place. If 50 or over, you can defer up to $23,000 to a 401(k) plan, and a specific amount to an SEP if aged 50 or over. It makes sense to increase personal contributions throughout the year rather than waiting until year’s end.
Take Advantage of Business Trips
Airfare, hotel stays, ground transportation, and meals are deductible. Just make sure you spend the majority of your days doing business. Personal expenses, such as sightseeing, are nondeductible.
Reward Your Staff
Your staff does a fine job of keeping the business afloat. While business entertainment deductions are normally limited to 50 percent of the cost, there may be a way to write off 100 percent under a special tax law exception. Consider inviting your entire workforce to a holiday picnic or barbecue.
Make Minor Business Repairs
Minor repairs are deductible, while major improvements must be capitalized. Conducts repairs as needed throughout the year. Treat major business overhauls as capital improvements. For improvements on leaseholds, certain restaurant buildings, and qualified retail improvements, the recovery period has been reduced to 15 years.
Check into the PATH Act and learn more about the tax breaks that were made permanent. There are special tax provisions that allow you to recoup remodeling costs much faster.
Hire Workers from Certain “Target Groups”
“Target groups” can be veterans or even food stamp recipients as an example. It is a good idea because it keeps people working and allows your company to claim a Work Opportunity credit for hiring workers from such designated groups. The credit is revived through the PATH Act and extends it through 2019.
You may always want to examine special credit of hiring disadvantaged youths from Empowerment Zones or Enterprise Communities during summer months.
It is no surprise that a lot of small business owners do not have a retirement plan in place. If you do not have one, now is the time to put it in place. The first benefit is that it is deductible! Of course, you will need to consult with a professional financial advisor or bank to determine the best plan for you.
There are a wide range of plans from which to choose, including IRAs, 401 (k) plans, to various simple plans. Some of these may or may not require that your employees be included in the plans.
For employees, a retirement plan can be a meaningful way to give a raise that does not require an additional cost of employer paid payroll taxes.
Take Another Look at Your Company’s Legal Structure
It could be an excellent time to evaluate your company’s performance under its existing legal structure. For instance, you may have started out as a sole proprietorship, but your business has grown exceedingly.
Also, you will have to reconsider how much the business is earning, and whether you must now take money via payroll than simple draws. There will be a lot more paperwork to consider, but it may prove beneficial in the long run. These are options that should be considered with your tax professional or an attorney.
Reexamine Employee Benefits
Your employees will also be the most valuable asset of your business, and you should treat them as such. The IRS offers information, Publication 15-B, which is Guide to Fringe Benefits. Consider saving money in payroll taxes while creating a much happier work environment for your employees.
Take another look at your financial statements and note if there are significant changes over the prior year. Are there anticipations for an increase or decrease in sales or expenses for the upcoming year?
Your tax pro can help you find areas where you can make adjustments for your estimated taxes.
Improving Business Profitability
As a business owner, your focus should be on increasing profits just as your tax professional is focused on making sure your tax returns are optimized. Finding ways to make your business more profitable is a mission that will benefit you and your employees.
1. Stay up on the latest trends and methods in market research. This is the best way to find and retain loyal customers. If you are not on top of things, you can rest assured that your competitors will be.
2. Reevaluate if your services and products are priced accordingly. If the value is inherent, you may want to consider increasing prices. Keep a close eye on what the market offers, and what prices are being charged.
3. Keep experimenting with ways to attract new customers, and to offer more for the same price. Your customers will reward you by remaining loyal. Keep training your employees and utilize the latest technologies.
4. Have a digital marketing plan in place. Social media can help boost brand awareness and bring customers through the front door.
5. Use efficient stock control to decrease unnecessary inventories.
6. Negotiate the best prices with your suppliers and vendors. This will pay big dividends down the road. Your staff can help minimize waste and errors by being properly trained. If you do not already have a digital marketing plan in place, get one.
7. Your website alone, and its design, can bring in a ton of new business and inform potential customers about your products and services.
Hiring the Right Tax Professional
There are numerous reasons to hire a tax professional. You have made a previous mistake on a tax return that a tax pro can help you correct. Mistakes can be made by anyone. A tax professional can help you iron them out.
Millions of people will get divorced, which changes their tax status. Other will get married and face a whole new tax scenario. It helps to know how your spouse’s tax status will affect your own.
A professional tax attorney or consultant can help you sort through all the constantly changing tax laws and codes. There may be deductions that you were not aware of. They can also help you avoid making mistakes in claiming deductions that may not apply.
1. They can help keep you up to date on tax codes and changes.
2. They can help reduce what you will have to pay or help get you a bigger return.
3. They can help save you frustration and time.
4. They can help steer you clear of tax pitfalls.
5. They can also represent you if you undergo an IRS audit.
They are there to help if the going gets tough.