24 Tips to Keep Money in Your Business During Tax Season
Am I Filing My Taxes Right?
Filing your business’s taxes can sometimes feel like a necessary evil making tax season a very stressful time for a small business owner. Each year you may be asking yourself, “Am I paying too much?” or “Have I taken advantage of all the deductions available to me?” or “What business tax credits apply to my business?” When you’re not a tax expert, it can be tough to determine the answer to these critical tax questions on your own. Absolutely no one wants to pay more in taxes than they have to, because we know the more cash you can keep in your business the more you can invest into valuable objectives that help your business grow.
To help put your mind at ease and keep more money in your business, since we are smack in the middle of tax season, we’ve compiled a list of 24 ways to keep your hard-earned money hard at work in your company.
How to Keep Money in Your Business
Some of these tips are more simple to implement than others, but nevertheless, we always suggest working closely with your tax accountant to ensure you are setting yourself up for success when it comes to implementing tax-saving programs.
12 Tips to Limit Your Tax Obligation
- Deduct your business travel expenses. Though this year may have looked different as far as business travel, some industries can’t avoid it. You can deduct travel expenses for your business outside of your normal service area.
- Employ family members, even your children. This can help create opportunities to deduct a portion of their salaries as business expenses. Children as young as 12 can work for their parents if their parents are the sole owners of the business. Earnings up to the amount of the standard deduction ($12,550) can be paid to your children tax-free so they can save for college, savings, etc. and your business gets the opportunity to deduct the wages. However, the wages must be reasonable for the actual work performed. Overall, this means more money within the family.
- The Qualified Business Income Deduction allows small businesses to deduct 20% of qualifying business income if your business is a pass-through entity (i.e. it is a sole proprietorship, partnership, limited liability company, or an S-corp).
- Start a retirement plan like a 401(k) which will help you maximize your retirement savings while at the same time limiting your taxable income.
- Change your business structure to an S-corp to reduce any personal tax responsibilities.
- Buy equipment, like computers or production machinery, and vehicles, like delivery vans, to take advantage of depreciation deductions which allow you to deduct the cost of the asset over its lifetime.
- Donate to charity! What a wonderful way to support your local community or a cause that is near and dear to your heart while also lowering your taxable income. Simple Startup is a big fan of Meals on Wheels and No Kids Hungry, which we donate to through our cash management course, but there are so many great options.
- Deduct the cost of gifts. Whether you’re treating your employees to a little end of the year cheer or impressing future clients or business partners, this generous tactic has benefits for your business too, beyond the feel-good vibes of gift-giving.
- Defer income. This tip entails delaying the receipt of income or revenue until the next calendar year. It is important to choose income that makes sense to postpone the receipt of like invoicing clients at the start of January for services received in December. The thought here is that this can keep your tax bracket lower and will thus keep more money in your business.
- Accelerate expenses. This is another tip that is relatively easy to implement where you can make business purchases sooner rather than later or pre-pay for certain expenses like rent or marketing vendors to boost your deductible business expenses.
- Write off obsolete inventory and uncollectable debts to reduce income. Similar to deferring income, this tip allows you to reduce your income and thus your taxable income.
- Hire a small business tax professional! You likely already know this one, but it’s worth repeating. A tax accountant’s job is to stay up to date on the tax code and this ultimately allows them to know how to ensure you are taking advantage of all tax-saving avenues available to you.
These 12 tips are just a taste of the opportunities available to you to make sure you keep money in your business and are paying just the right amount of taxes to the IRS when the tax deadlines arrive. For your best chance of successfully implementing them, we recommend doing some annual tax planning at the start of each year so that you can put these tactics to work far in advance of the year’s end.
12 Small Business Credits
In addition to making annual tax planning part of your normal business planning process, there are a variety of business tax credits available to owners and founders depending on their industry, the benefits they provide to employees, and much more. Following are 12 of these credits to consider.
- The General Business Tax Credit or the total value of all singular credits that can be applied against your tax return.
- The rules of the Employee Retention Credit, due to COVID, have been relaxed and your business will most likely qualify for the 2020/2021 tax year.
- The Research & Development Tax Credit provides for a federal and/or state credit to deduct up to 20% of qualified research expenditures for certain industries.
- Credit for small employer health insurance premiums. If you’re providing for your employee’s health benefits, you can receive a credit.
- Credit for paid family leave. The Internal Revenue Code Section 45S provides a tax credit for employers who provide paid family and medical leave to their employees as a percentage of their wages while they are on their leave.
- Credits for alternative fuel and alternative motor vehicles. For example, in Colorado, if you purchased a light-duty truck that is an alternative fuel vehicle, you can receive a credit of $5,500 for the 2020 tax year.
- The Disabled Access Credit provides a credit for businesses that did not exceed $1M in gross receipts or had fewer than 30 employees who incurred expenses to comply with the Americans With Disabilities Act of 1990.
- Businesses who provide childcare facilities can claim the credit for employer-provided childcare which is a percentage of expenses related to running the facility and limited to $150,000 per tax year.
- The Work Opportunity Tax Credit (WOTC) is a Federal tax credit available to employers for hiring employees who face barriers to employment like ex-felons or veterans.
- The small employer pension plan startup credit provides up to $5,000 for three years to reduce the cost of setting up a SEP, SIMPLE IRA, or a 401(k) program.
- The Empowerment Zone Credit allows employers of employees who live in certain urban and rural areas to receive a percentage of that employee’s income as a credit.
- Opportunity zone credits reduce capital gains taxes for businesses who invest in qualified opportunity zones. For example, if you purchase a business in an opportunity zone you may be eligible to receive a credit.
Again, this is not an exhaustive list and there are many more tax credits that may be applicable to your business. The best way to uncover these tax credits is to speak with your tax accountant about your business objectives for the year so they can identify opportunities that may be available to you.
How Can We Help Keep Money In Your Pocket?
Though filing your annual tax return and cutting a check to cover your tax obligations to the IRS can feel like a lot to take on while also running your business, it doesn’t have to be. With the help of many of the above tips and credits and a real conversation with your tax accountant, you can be sure that you aren’t paying too much in taxes and that you’ve taken advantage of every available opportunity for your business.
If you need help implementing these tips or with your annual tax planning, we’d be happy to help you by starting with a conversation about your objectives and needs. Simply book a call with one of our tax experts and we’ll help you rest assured that your taxes are being taken care of properly.