Posted by LLOYD J CAZES CPA

Year End Tax Moves for Small Business Owners

Year End Tax Moves for Small Business Owners

We know that the tax season is months away. However, the year will end in a couple of weeks. This is the perfect time to be proactive with your tax planning to have a favorable 2020 tax bill. Here are some yearend taxes saving moves that you can make as a small business owner.

Schedule Business Income and Deductions for tax Savings

If you are a sole proprietor, partnership, LLC or S cooperation, you get to access some of the shares of your revenue and deductions. They are therefore taxed using your personal rate. The coming year’s personal federal income tax rate will not differ from the present year, even though there might be some provision for inflation. 

As a result, the old strategy of moving your income to the coming year while increasing expenses for the present year is a good strategy. This works well if you will be in the same or lower tax bracket in the coming year.

If you will, however, be in a higher tax bracket in the coming year, take an opposite strategy. If possible, have more income coming in and let expenses that will be deducted happen in the coming year. This will make more income available for tax at a lower rate in the present year.

Claim Complete Bonus Depreciation for Asset Additions 

For properties acquired and used in the 2019 calendar year, the Tax Cuts and Jobs Act has made 100% depreciation bonus available for all properties acquired. The implication of this is that you can write off the cost of some or all of your assets in the year. With this, it is a good idea to make extra property acquisition. Your tax pro can guide you on the types of assets that qualify. 

Set up a tax favored Retirement Plan 

It is a good idea to set up a retirement plan if your business does not have one. Present retirement plans have rules for significant deduction contribution. For instance, for self employed people with SEP-IRA, you can save 20% of your earnings, with a maximum amount of $55,000 for the year. For employed people, you can contribute 25% of your salary and a maximum contribution of $55,000.

Small business can consider retirement options like 401(k) plan. You can set up other plans like the defined benefit pension plan, SIMPLE IRA, etc. You can talk to your tax pro on the relevant and recommended retirement options for small businesses. Have in mind that should you have employees, your retirement plan might include them.

Attempt Deferring Taxable Income 

Many small businesses enjoy the benefit of using cash method for tax. Should you be eligible, you will be able to micro manage your 2019 and 2020 business tax income. This helps reduce tax over the two year period. If you think your business will be taxed at the same or lower rate in the coming year, we have some cash method accounting moves to defer tax till 2020.

  • Make payment with checks and mail them some days to the end of the year. According to the tax rules, the check might not be cashed till the following year, even though you can deduct the expenses in the year you mailed the check. 
  • There is a rule that you are not mandated to report income till you receive your cash or the check via mail or hand. With this in mind, we recommend waiting some days to the end of the year before sending invoice to some TRUSTED customer. This will defer some of your income to the coming year because some of the money won’t be paid till the coming year.

Conclusion 

One of the best ways to improve the net profitability of your small business is by minimizing tax. You can be proactive and work with trusted financial planners and tax pros to develop a fool proof strategy to increase your income. You can develop fool proof strategies that will reduce the rate at which some of your hard earned cash flows to the government as tax. 

When it comes to retirement account, you have the choice to decide if you want your money to flow to the IRS or have the check wired to yourself!

LLOYD J CAZES CPA
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