Top 10 Tax-Saving Tips For Your Business
Top 10 Tax-Saving Tips For Your Business
For most small business owners, owning and running a business of their own is a dream fulfilled. It evokes pride and joy, that is, until tax time. In fact, taxes generally account for the majority of a small business owner's yearly expense. But with the help of some important tips and tricks, you can gain control of your tax situation. You may just end up putting more of your hard-earned dollars back into the business instead of Uncle Sam's pockets.
Number 1: Consider incorporating
If you're operating a sole proprietorship or partnership, you may want to consider the advantages of incorporating your business. Not only will you enjoy the benefits of limited personal liability, but corporations will generally pay less in taxes, namely the self-employment/FICA tax.
Number 2: Use a home office
In addition to the personal benefits (like working in your pajamas), home-based businesses also profit from lower tax obligations. One obvious plus is low overhead expenses. But, more importantly, it will allow you to deduct the business use of your home, provided that you establish a separate space in your home solely for the operation of your business.
|Organization is key to saving precious dollars at tax time. With a little year-round planning and a keen eye for expenses and tax-saving maneuvers, you can make tax-time work for you|
Number 3: Be Charitable
Make a habit of donating unused goods, equipment or supplies to charity. Not only are you helping others, but these donations are tax deductible. Just be sure to get a receipt for your donations and reap the rewards at tax time. Similarly, gifts of appreciated stock are also deductible-friendly. You'll earn a deduction on the amount the stock grows as well as the purchase price.
Number 4: Organize the books
Organization is key to saving precious dollars at tax time. Keeping your records in order will leave you well-equipped should you be audited. Detailed record-keeping also makes it possible to spot an expense that can turn into a tax deduction. All canceled checks and receipts should be sorted monthly into "deductible" and "non-deductible" piles.
Don't forget that entertainment or social expenses can be business deductions. But you must show the expense served a business purpose. In other words, don't jot down your brother's birthday dinner as a tax deduction. Keep the names of the clients, customers or business associates involved. Organizing all of your receipts, credit card statements and appointment calendars will come in handy with recollecting and supporting these business deductions.
Number 5: Get to know your business' profit and loss standing
Get to know your business. Determining your company's profit and loss standings will allow you to make some tax-saving moves throughout the year. If your business shows a profit, consider purchasing business assets and additional equipment before the end of the year. These business deductions can lower your taxable income.
Number 6: Evaluate your salary
If you receive a salary from your business, compare the amount you were paid in relation to how well your business is doing. Depending upon your profit/loss standing, you may wish to collect additional income or a bonus. Or, you may decide to stop receiving a salary until the beginning of the next tax year.
Number 7: Collecting debts
Make a point to review and analyze your current list of customers with outstanding balances. Also, you should look over other accounts receivable. Uncollectible debts can be deducted as bad debts on your tax return.
Number 8: Employee payroll
If you paid any employees during the year, file all payroll reports at year-end. And submit W-2 forms in January. Overlooking these crucial steps might result in an oversight of employee taxes. Save the hassle of paying extra penalties and fees later.
Number 9: Plan ahead
Procrastination will cost you! Consult with your accountant well in advance of tax day. File tax returns early to leave you time to send tax payments before they're due. Any payments received after the due date will incur penalties, interest and late charges, even if you file an extension. Filing early will save you later.
Number 10: Tax time is year-round
Make tax time a year-round concern. Most small business owners only worry about tax issues during tax season. But proper planning all year long will result in more efficiency and huge savings at tax time. Plus, paying more attention to finances will give you a better knowledge of your business operations. And that knowledge will translate into increased savings. Perform all business operations with the ultimate goal of tax savings in mind.
With a little year-round planning and a keen eye for expenses and tax-saving maneuvers, you can make tax-time work for you. And reducing tax stress gives you more time to concentrate on other areas of your business. While tax day might never be your favorite day, it definitely won't be quite so scary either.