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Even if you have a CPA prepare your federal and/or state taxes, they can only help you save money if you have kept adequate records and made smart decisions throughout the year. To put it simply, the best small business tax strategies will revolve around the steps you can take throughout the year to plan and prepare.
At John F. Dennehy CPA, we offer years of experience helping small businesses minimize tax liability and create a competitive advantage. To help you along your journey, we have outlined our top small business tax strategies you should keep in mind all year long.
If your business is considered a "pass-through" entity, (a sole proprietorship, S corporation, or a partnership) you may be able to deduct 20% of your qualified income. This is in addition to deductions for your business expenses. You are eligible for this if your income is $57,500 for singles, and $315,00 for married, filing jointly. It's critical to plan strategically to utilize the qualified business income deduction if possible.
If your business makes charitable donations throughout the year, make sure you keep track and accurate documentation. While the monetary donations are obvious deductions, most business owners are surprised to know that charitable contributions of professional services or goods can also be deducted. This means you may be able to deduct the value of the computers your business donated to the Goodwill as well as any other donation.
Being a small business owner is loaded with benefits. However, one of the key downsides of being a small business owner is the lack of an employer-sponsored retirement plan. But did you know you can contribute to a retirement plan and reduce your tax liability?
As a small-business owner in a one-participant 401(k) plan, you may contribute $57,000 in retirement contributions. Your other options include 403(b) plans, traditional or Roth IRAs, or Simplified Employee Pension (SEP) plans. And the team at John F. Dennehy CPA can help you understand all of your options and guide you to the best solution.
Review your consumer accounts at the end of the year and write off any bad debts (accounts that you no longer expect to receive payment upon). You may write the cost of these accounts off as "bad debt" and deduct that amount from your business income. Bad debt may also include loans made to vendors, employees, or clients who do not pay you back.
There are a multitude of tax credits available for you to use to decrease your tax burden. Tax credits generally provide a dollar-for-dollar offset of your taxes. This is the federal government's way of getting you to do things that are for the "greater good."
Tax credits are available for things such as hiring employees, providing access to disabled employees and the public, going green, and providing health coverage for employees. These tax credits are enumerated in the General Business Credit, which is very extensive. Because of the potential value of tax credits, the team at John F Dennehy specializes in helping business owners optimize income tax filings with tax credits. Some of the most common tax credits include:
In addition to these tax credits, we will make sure you are making the proper deductions for all of your business expenses, so your tax burden is reduced as much as possible.
Hiring one or more of your children is a way to avoid paying some taxes. The IRS does not require you to pay Social Security, Medicare, or Federal Unemployment Tax Act (FUTA) taxes on wages paid to your child. The IRS also allows you to eliminate FUTA taxes if you employ your spouse.
Businesses may write-off the cost of business equipment and vehicles, often beginning with the first year that they are placed in service. Even real estate can sometimes be written off. There are multiple depreciation methods that you can choose. I can advise which one is the best option for your business.
Rather than paying high salaries that come with higher tax burdens for you, establish fringe benefits for your employees that provide value to them while keeping your tax burdens minimized. Examples of these fringe benefits include:
All of these programs can act as drivers for small business tax strategies that can be used to lower your tax liability.
Most business travel expenses are fully deductible, as is the cost of gifts given to clients. Make sure to document the justifiable business reason for the travel and gifts so that they are not seen as personal expenses. Any airline miles earned for business purposes may be redeemed for leisure travel, however.
Did you know that you can delay taking income from one tax year to another? To effectively use this strategy, you must predict which year will have the highest tax burden. In addition to delaying income, you can prepay business to get a bigger deduction in the year you outlay the cash. You can also do this by stocking up on supplies before the end of the year. Fortunately, the experts at John F. Dennehy will work closely with you to help you understand all of your options to make the best decision.
We get it— taxes can be confusing! But when you partner with John F. Dennehy CPA, we'll work to make it as easy and painless as possible.
Contact us today for more small business tax strategies.
We at John F. Dennehy CPA are a team of certified public accountants who service clients throughout Long Island. The services that we provide are comprehensive, and we can resolve multiple accounting needs for a client.