Posted by Income Taxes and Bookkeeping LLC

5 Tax Savings Opportunities for Businesses

5 Tax Savings Opportunities for Businesses

As a business, it is important to look for ways to reduce your expenses. This includes not only making better choices in terms of vendors, but also examining opportunities to reduce your tax liabilities. Small businesses can take advantage of these five opportunities to reduce their tax burden, while at the same time benefiting their bottom line. Working with a tax professional, such as Income Tax and Bookkeeping in Winchester, IN, can help you to maximize these savings throughout the year.

1. Section 179 Expensing Rules

While the limits on Section 179 in terms of the amount that you can deduct, it is important to make sure that you are using the full annual limit. Working with your tax professional, you can plan out your capital expenditures to take full advantage of this deduction. That could mean choosing to amortize an expense over several years, versus taking it all in one year, so that you can maximize your deduction several years in a row. It is important to note that any purchase being deducted in a specific tax year must be put to use in the business during that tax year. So you will want to avoid making any purchases just prior to the end of the year, because they might not be in service in time to count for that year.

2. Maximize Your Deductible Expenses

If you are using the cash method of accounting, you might want to consider prepaying for some events or supplies prior to the end of the year. It might mean that those supplies or that conference is not attended until the following year, but you can claim the deduction right away. Keep in mind that the IRS can get picky about business inflating their deductions through excessive spending at the end of the year. Also, if your business income is set to rise, you might want to hold off on those expenses to use those deductions next year.

3. Defer Your Income

The cash accounting method has another bonus, in that you can defer income. What this means is that you can time your invoices so that the payments come in during the following year, instead of cash in your current fiscal year. As a result, your taxable income for the current year goes down. However, cash in hand, even if it is not yet deposited, must still be counted as income in the year it was received.

The important to remember is that you have flexibility when it comes to timing your invoices, so just remember that it might be worthwhile to hold off until after the first of the year.

4. Contributing to a Small Business Retirement Plan

As individuals, we are encouraged to reduce our tax burden for the year by contributing to our 401(k). For small businesses, this can also hold true. Various plans can allow business owners to defer larger amounts than others. Some plans can be established at the end of the year, but allow for contributions to be made into the account until the business files its tax return for that year.

Keep in mind that each plan carries its own rules and regulations, as well as various pros and cons. So you will want to find the plan that best fits the needs of your business. Plus, you have to remember that if you are making retirement contributions for yourself, then you will need to make them for all employees as well. Therefore, be prepared to set a standard contribution that will count across the board for you and your employees.

5. Employee Bonuses and Charitable Donations

If you have chosen to incorporate your business, then you might want to consider giving your employees a bonus. These bonuses then become a deduction for your business. However, if they are made at the end of the year, they must be included in your employees’ income for the year. As a result, you will have to pay employment taxes on them. But the overall savings could be well worth it, not to mention the overall boost to your employees’ morale. Another option is a donation to charity. This can be equipment, funds or other supplies. Therefore, you can make a difference in your community and enjoy the benefits of the deduction as well.

Regardless of which deductions you choose to take advantage of, it is important as a business owner to work with a qualified tax professional, such as Income Tax and Bookkeeping, who can assist you in making the best choices for your business. Call or click on the link below to connect with one of Income Tax and Bookkeeping’s professionals in Winchester, IN.

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