Most people don’t like tax preparation, tax return or meeting with accountants. For small business owners, it’s their No. 2 dreaded task, ranking only below cold calling, according to an Adobe survey of small businesses.
But taxes can be a small business owner’s biggest expense. Think about it – between federal and state taxes, the average small business owner will pay between 20 and 30 percent of their earnings. Considering that 41% of small business owners reported having seen their income decline last year, most cannot afford not to focus on reducing tax costs.
My advice? Meet with accountants at least two to three times a year and ask about these five things (and 20 more at the link below) that could create big savings in time and money.
1. Save money by buying equipment, furniture and computers. Eligible businesses can write off up to $1M in capital expenditures (equipment, computers, machinery, etc.). Under Section 179 of the Tax Code, small businesses immediately receive a deduction and finance the costs instead of paying immediately.
2. Saving through innovation. Some small businesses are eligible for the research and development tax credit. It can be used to develop or improve a product or process, especially if the process involves chemistry, engineering, or software development. There is a calculation to be made and as it can be complex, accountants may recommend an outside firm. Remember that this is a credit, not a deduction. This means that businesses can deduct the amount of taxes owed. Even if they don’t owe any tax, they can carry it forward or backward.
3. Save money by hiring the family. Some small business owners can put their children on the payroll and get a deduction for expenses if the child has no other income. The child may not even have to file a tax return depending on what he earns. A middle or high school kid who can perform legitimate services (deposits, moving, paperwork, data entry) can be leveraged. They can learn some good work practices and save a few dollars for their savings.
4. Savings on bad debts and inventory. Small businesses should diligently write off bad debts and inventory. Show the accountants the company’s accounts receivable ledger and present the inventory to them. If there are receivables that hang around for more than 90 days, write them off the books. The same goes for old inventory – throw it away. They cannot be deducted until they are fully removed from books and premises.
5. Saving for higher education. Small business owners can start a 529 plan for themselves and their employees. Available in all states, this plan puts after-tax money into a savings account. It will grow tax-free to be used for higher education expenses such as tuition, room, board, books, and many other related items. Check with an accountant for a recommendation.
Taxes take up a giant chunk of small business profits, but with proper planning, there are measures that can minimize expenses and generate more savings. For my other 20 tips? I share them – and more – in this virtual presentation.
Gene Marks owns and operates the PC Group Brandsa very successful ten-person company that provides technology and consulting services to small and medium-sized businesses.
Take the hassle out of preparing personal income tax returns
Looking for ways to simplify and maximize personal taxes? Here are a few other ways to get the best value.
1. Savings on home office equipment. Those with a side business or small business may be eligible for home office deductions if it is the main establishment, meeting place, or a separate structure. It must be exclusive and regular, so not a room. The deduction can be based on actual expenses, to include utilities, internet, etc. The easiest option is the “Simplified Method” which deducts up to $5 per square foot (maximum 300 square feet) based on the square footage occupied by the office. the House.
2. Saving in retirement. Maximize 401(K) and IRA contributions. Starting this year, qualified individuals can invest up to $20,500 in their 401(K) plan and an additional $6,000 in an IRA plan. Employees whose employer matches can contribute up to $61,000 to their 401(K) plans. Don’t forget about after-tax plans like a Roth IRA or 529 plan. With these, even though the contributions are after-tax, they will grow tax-free.
3. Digitize your documents. Preparing tax returns can be much easier and less time-consuming with digital technologies such as Adobe Acrobat. Easily collect and organize paper and digital tax documents at a glance, combine them into a single PDF, and access them all in one place. Free Adobe Scan mobile app is another option that turns paper documents like W2s into digital files. It’s also easy to highlight and add notes directly to tax documents with Acrobat Chrome and Microsoft Edge browser extensions. Finally, add password protection to share tax documents securely and with confidence.