The Internal Revenue Code is set up to provide numerous tax breaks to individuals and businesses alike. Even the IRS acknowledges that you must keep some money to live on and with which to run your enterprise. Some small business tax savings strategies, like timing income and expenses, must be accomplished before the end of the tax year. A few small changes can make a big difference in your total income and tax liability for the year. To get you started, here are a few important year-end tax preparation steps you can take in order to close out the year financially and take advantage of additional deductions. 10 Tax Saving Tips For Small Business Owners 1. Pay attention to carryovers. Some of your deductions will have limits that can stop you from using them in the. Use a tax software that finds deductions for you. Torrent u.s. citizenship exam review. Is your business home-based? Do you drive for business, or take. Implement a 401. If you want to see the current tax brackets and get more tax benefit tips, check out Fitsmallbusiness.com’s 25 Ways Small Business Owners Can Save On Taxes. Deduct Travel Costs.
The Top 10 Tax Saving Tips to help Business Owners
Well it is fast approaching that time of year again, but don’t despair it is not too late to maximise your tax, we asked our tax accountants to come up with 10 tips to minimize your tax bill this year!
The Top 10 Tips are:
- Try and work out roughly what your net profit will be this year, in some cases such as where you keep your record fairly up to date this will be easy, don’t forget to allow for tax deductions that might not be as obvious like the tax break and depreciation of plant and equipment. Once you know this you should have some idea of what you tax bill will be and how much money you have to play with.
- Look at easy tax effective strategies first, one of the easiest methods to reduce your tax bill as a business owner is to make additional contributions to super that way you are saving for your retirement and saving tax at the same time. Do be careful of the super contribution caps though.
- If you run your business through a company you should look at how much you want to pay yourself as an employee and how much you want to leave in the company. For this year (2010) individuals will pay tax on income between $37,000 and $80,000 which is the same as the company tax rate of 30% (ignoring Medicare levies).
- Keep track of business car use, (preferably using your diary or a log book) some many people say they don’t use their car for work and yet when quizzed make trips to the bank, office works, picking up interstate staff from the airport, attending seminars and work functions etc. These small and sometimes infrequent trips can easily add up to several hundred dollars of tax deductions, especially if you keep track of them properly. If you use your car for work a lot you should consider if your current recording method is the best, possibly a nova-ted lease or chattel mortgage may be a better and more tax effective option, please contact us for professional advice.
- Do you have Income Protection and/or Key man insurance? If so depending on your circumstances these premiums are generally tax deductible, you can pre-pay the next 12 months premiums and claim a tax deduction in this year. Again please contact us if you are considering this so we make sure you do it right.
- Structure your investments to maximise their tax effectiveness and invest in tax effective assets to begin with, if you think your tax bill will be high this year or you want to really maximise your refund there are a range of investment strategies to achieve this like pre-paying the next 12 months interest on your investment loans(s).
- Keep track of home office use, just like you car it is amazing how much time we all spend working these days including checking e-mails and doing research after hours and on the weekends, if possible keep a diary of your home office use.
- Keep all of your medical receipts; did you know that if you spend over $1500 on medical expenses in a year the ATO will give you 20% of the excess back? It is amazing how many people do not even know this rule exists.
- Start investing in tax advantaged investments, you can start by using our online tools to do a budget and see how much money you have available to invest, then look at the many tax advantaged investments and investment strategies available. Ask yourself would you rather invest your money or pay it to the government?
- Lastly if you are still worried about your tax bill or would like some personal advice book in to see one of our tax advisers, we charge $110 for a consultation which is also a tax deduction!
We hope this helps, over the long term being smart about your taxes can make a huge difference, one of the biggest advantages of owning your own business is the ability to plan and adjust your tax bill legally and easily, don’t let that opportunity pass you by you only have till June the 30th to make any meaningful changes.
For more information or a confidential discussion of your needs, please call the office on 1800 556 122 or contact our Small Business Accountants here.
Being a small business owner is expensive as it is -- every penny counts when entrepreneurs are living on razor-thin margins and fighting for market share. But owning and operating a small business is even more expensive when you pay more taxes than you owe.
Related: Follow These 3 Savvy End-of-Year Tax Tips
In a survey personal finance expert Garrett Gunderson conducted of his small business-owner clients and wrote about for Forbes, approximately 93 percent of them had overpaid over the past dozen years. Now, nobody expects owners to be tax professionals -- you do have businesses to run, after all -- but it's important to know where you can save money in order to invest that money back into your business.
Here are 10 tax savings to keep in mind for your business, as 2018 gets under way.
1. Utilize tax filing software.
While this recommendation may be a no-brainer for the small business owner interested in avoiding headaches, it's applicable to even the tax-savviest entrepreneurs; it offers protection a small business owner may not be able to afford otherwise.
Platforms like TaxSlayer, TurboTax and H&R Block can help you prepare and file your tax return online while backing up that filing with accuracy and maximum-refund guarantees. Having a shield that ensures the accuracy of your return -- and guaranteed reimbursement of any fees or penalties you've been charged -- makes every other tax hurdle easier. I've personally used each one. I tend to prefer them in the order I've listed them.
2. Keep close tabs on all receipts.
Receipts create the financial dashboard of how you spent your money throughout the year. Many of those receipts are for goods and services that can be deducted on your taxes, offsetting taxable income. Depending on your business structure, there are specific deductions you can take for certain structures, plus deductions that apply across all structures. Of course, keeping receipts for an entire year is a hassle; many pieces of paper get misplaced or tossed.
However, 1tapreceipts can change that by offering an app that captures, stores and organizes all your receipts in one place. You'll be able to import receipts from photos as well as forward email invoices from your inbox. The app automatically extracts line items from each receipt using machine learning and artificial intelligence, even if receipts are double-sided. This way, you'll make sure you obtain proof of, and retain that proof, for every expense deduction owed you. Happily, the app syncs with most tax-filing software.
3. Pay for your retirement now (and get a payoff later).
A self-employed worker's taxable income can be reduced by putting additional money toward a traditional retirement account -- the money isn't taxed until the funds are withdrawn in retirement. Small business owners under 50 can contribute up to $5,500 (per taxpayer) to a traditional or Roth IRA; those over 50 can put up to $6,500 toward their retirement savings.
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Related: 4 Tax Tips for Small Business Owners Determined to Pay Only Their Fair Share
10 Tax Saving Tips For Small Business Owners Tax
Your financial advisor can pinpoint the amount that makes the most sense for your cash flow, but this is a tax move that pays off both now and later.
4. Deduct your home office.
Many small business owners operate from offices at home, but not all of them realize they can deduct expenses related to that home office. These can include insurance, mortgage interest payments, repairs and utilities like internet service.
You do, of course, have to determine what portion of your home is dedicated to running your business (the tax software does the mathematical calculation for you), but this deduction can benefit both homeowners and renters.
5. Deduct your car expenses.
The trick here, again, when you're deducating expenses, is to calculate what percentage of the time your car is being used for work. From there, you can apply that percentage to your overall car expenses.
For this category of deduction, two types are available: the IRS's standard mileage rate or your actual car expenses (including insurance, gas, and repairs). Figure out which one makes the most financial sense before filing so you can maximize your savings.
6. Get your money's worth from your business equipment.
Section 179 allows small business owners to avoid tracking depreciation by treating equipment as a business expense in the year it was purchased (with an upper limit of $500,000). Business equipment encompasses anything a small business owner may need to run a business, from an industrial-grade oven to office furniture to computer items.
A Section 179 calculator can help you determine how much you can save by taking the 'lump sum' approach; keep in mind that Section 179 doesn't automatically kick in. You must file a Form 4562 to elect it.
7. Hire family members to work for you.
10 Tax Saving Tips For Small Business Owners Near Me
If you have family members who can help with tasks essential to your business -- say, a teenager who can help mow lawns as part of your lawncare business -- you can add tax savings to the benefits.
Hiring a family member means you can take a business deduction for reasonable compensation paid to that person (lowering your taxable income), and it can also result in your being able to avoid taxes such as FICA and FUTA.
8. Keep an eye out for carryovers.
Some deductions or credits may not be fully used in one tax year and are eligible to be carried over into future years. These can include items like capital losses, net operating losses, home office deductions and charitable contribution deductions.
Track these (or have your software do it), so you don't forget them from one year to the next.
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9. Don't sell your old equipment.
If you want to get rid of property that's no longer providing ROI to the business, find out whether it would be better to abandon it (an ordinary loss) or to sell it (a capital loss).
An ordinary loss is fully deductible, so find out how your property may be classified under Section 1231 to determine how you should rid yourself of it.
10. Take advantage of penalty relief if you're eligible.
Despite following these steps and/or the recommendations your accountant makes, you may incur an IRS penalty. If that happens, you need to determine whether you're eligible for penalty relief.
Some penalties, such as penalties for failing to file a tax return or to pay on time ,are eligible for penalty relief. People who can be considered for relief include those who tried to follow the legal requirements but were unable to meet them due to circumstances beyond their control, or those who were able to resolve an issue pointed out in their penalty notice. Not everyone in these two groups qualifies, but it's worth finding out whether you do. And that's money back in your pocket for an honest mistake.
Related: 10 Year-End Smart Tax Strategies for Business Owners
You don't need to make small business ownership more financially draining than it already is. By carefully accounting for deductions throughout the year and investigating your options in tricky situations, you'll find alternatives you didn't know existed -- and savings you can really use.