Home Tax Tax Planning Strategies for Small Business Owners

Tax Planning Strategies for Small Business Owners

No one likes paying taxes, including small business owners. While it’s impossible to completely avoid tax liabilities, there are legal ways of mitigating them and keeping costs as low as possible.

Utilizing strategic timing can save your business money on taxes. Here are year-end tax planning strategies that could significantly lower its taxes.

Defer Income

Deferring taxable income can significantly lower a business’s tax liability. If, for instance, you expect a sizeable payment before December 31st arrives, consider asking clients to delay receiving it until after that date in order to push this income into next year. However, depending on your accounting method (e.g. accrual-based), this could have some tax ramifications; be sure to discuss this matter with your CPA or financial professional for details.

Tax planning techniques offer numerous strategies that can help reduce what you owe Uncle Sam come tax day. You can leverage deductions, credits, exemptions and incentives while remaining compliant with all regulations pertaining to your operations and using accurate financial records as well as tracking deductible expenses with an experienced accountant to maximize savings while decreasing tax liabilities. To discover these valuable small business tax planning strategies contact your local accountant today.

Accelerate Expenses

The IRS Code contains a vast assortment of deductions that can dramatically lower your tax liability. By understanding them and working with a skilled tax accounting firm, you can make the most out of them.

These strategies can help you defer income or accelerate expenses to fit into various tax brackets and reduce overall tax liability. For instance, if you anticipate being in a higher tax bracket next year, it would make more sense for you to accelerate expenses such as rent or supplies in this year if that will bring down the overall liability for you. Likewise, deferring expenses until next year might make more sense in that instance.

Further, you can deduct certain work-related expenses that reduce taxable income such as home office deduction and interest paid on business loans – this helps lower AGI and thus your tax bill.

Acquire Assets at the End of the Year

Business owners should continually seek ways to reduce their tax liability. While tax filing season can seem intimidating, working with a reputable accounting firm and taking advantage of legitimate deductions can significantly decrease how much Uncle Sam owes your business.

Deferring income, increasing expenses, and taking advantage of end-of-year deductions are all excellent strategies to lower your taxes come Tax Day. A knowledgeable accountant or tax professional can assist in devising the ideal strategies for your unique circumstances – for instance hiring family members to increase profits or tucking extra funds away into a self-employed retirement account (SEP IRA).

Business owners should also assess their carryover deductions, which can help offset future taxable income. These include unutilized net operating losses, capital loss carryforward, foreign tax credit carryforward and investment dividends carryforwards – some of which could reduce gross income below the threshold at which taxes must be withheld.

Take Advantage of the Home Office Deduction

If you work from home or have a dedicated office within your house, and use that space exclusively for business activities, the home office deduction could apply to expenses related to it. Just be sure to keep records to prove it! Additionally, qualifications and rules may change each year so make sure to stay abreast of them in case any regulations change or alter as you could qualify for them!

Example: you cannot deduct a spare bedroom that your children use as play space or where you watch television; in order to qualify as a deduction, this room must be separate from the living area and used exclusively for working or meeting with clients.

No matter where your small business stands in its early or later years, tax planning can help lower its liabilities at year’s end and set it up for future success. Proactive business owners actively explore all viable tax savings strategies while consulting a qualified tax professional who can offer customized advice while assuring compliance with applicable taxes laws.


Nataniel Snider

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