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Running a small business can be rewarding because instead of working for someone else, you get to work for yourself. Every ounce of work you do contributes to your own success in your business. When it comes time to pay taxes, however, you may wish for the days when someone else was responsible for that burden, but these small business tax tips can help you discover savings and reduce your tax burden significantly.
Tip One: Last Minute Purchases
Office supplies, and business equipment, reduce your taxable income. Consider making any significant equipment purchases at the end of the year. Anticipate any new equipment you may require and purchase the items before the end of the tax year. Save the receipts and write off the purchases.
Tip Two: Defer Income
If you are able to do so, time your invoicing so that toward the end of the year, your clients' payments don't come in until the following year. By increasing your expenditures and decreasing your income, you will effectively reduce your tax burden.
Tip Three: Plan for Retirement
You can significantly decrease your tax burden by investing in a retirement plan. Whether you invest in a 401(k), an IRA, or a KEOGH plan, the money you invest in that account before the end of your tax year will not be taxed at all up to a certain amount, so the more you can afford to invest, the better.
Tip Four: Make a Charitable Donation
The money and property you donate to an approved charity can also be deducted from your income and reduce your tax burden. Be sure you obtain a receipt from the charity for audit purposes. There are limits on how much you can deduct, so seek the advice of a tax advisor or accountant, but you can make a considerable difference in your taxes due by getting rid of unused office equipment.
Tip Five: Pay Expenses
If you have cell phone, internet, rent, or other expenses that you would normally pay after the tax year has ended, try to pay as many of them early as possible. The expenses you have paid for are the ones you can deduct, so make as many payments as you can before the tax year ends.
Tip Six: Go Green
The government is rewarding businesses and individuals for making energy saving changes to their homes and businesses. Some improvements are eligible for tax credits, which actually reduce your tax owed rather than reducing your taxable income, making them a great way to save money and help the earth.
Tip Seven: Accelerate Your Depreciation
Whether you buy $150,000 tractor or a $150 desk chair, the IRS has depreciation schedules you must use to write off the value of the equipment over time. To help small businesses, however, a Section 179 form allows you to take the entire cost of the equipment as a one-year write off. If you've recently made a major investment, you can significantly reduce your taxable income with this small business tax advantage.
