Don't put off working on bookkeeping and tax records until the last minute. But if you do, you probably look for tax tips as it gets closer to the deadline. Here are commonly-forgotten methods to decrease your tax liability...
Tax Tips For Small Business Owners, 2020 And Beyond
Small business owners are often looking for ways to reduce their tax liabilities. As you work with your tax advisor, ask questions and set strategies that could help you this tax year and going forward.
This article walks you through sometimes-forgotten ways to decrease the amount you pay Uncle Sam. Here are four timely tax tips for small business.
Determine The Most Advantageous Tax Deductions For Your Business
Many small business owners can deduct 20% of qualified business income when they calculate their federal taxes. But this isn’t automatic. This deduction applies to income from ‘pass-throughs,’-- when owners pay taxes on business income themselves, rather than the business paying tax.
The law does limit this deduction for some service businesses:
- Legal
- Medical
- Accounting
And some B2B practices.
You might see a reduced deduction if your taxable income is high. If that is the case, you might want to change your status from a pass-through business to a C-corporation. Your tax advisor can help you decide if the switch makes sense for you when starting a tax business.
Create A Smart Plan For Paying Taxes
Regardless of the outlook for your business revenues during a given year, you should prioritize setting funds aside for tax time to prevent cash flow problems. You can arrange a line of credit to pay the IRS.
Ask your accountant whether you would be better off paying quarterly estimated taxes, allowing you to distribute the costs, instead of having to make a large sum tax payment in April.
Set Up Or Add To A Retirement Savings Plan
In addition to personal IRA contributions, small business owners have a few options for employer-sponsored retirement savings plans. These differ in the:
- Amount the employer and employee can contribute
- The investment options that are available
- Ease and expense of setting up
With any plan, the contributions that you make for yourself and your employees could be tax-deductible. Small businesses can also get a tax credit to help with the cost of starting retirement plans.
For calendar year taxpayers, you will usually have until the due date of the small business' tax return to contribute funds to a retirement plan. Some types of plans must be established before the end of the year, or earlier, to get the tax deduction. Ask your tax advisor about end of year tax tips.
Equipment Tax Tips: Take Advantage Of Larger Tax Deductions
If you buy any new or used equipment for your company and put it into service before the end of the year, then you could be entitled to a federal tax reduction of up to $1.04 million. Because these deductions are intended to help small businesses, they start to phase out when you spend amounts starting at $2,590,000, and ending $3,630,000.
In addition to this deduction, your small business can take a 100% bonus depreciation deduction on certain kinds of equipment that was bought and placed in service by a certain point in the year. This deduction can be applied to purchases of some used or new business equipment.
