If you’re a small business owner, you may want to review your business tax situation well before December 31 to determine what strategies you can implement to minimize your tax liability this year. The general strategy of reducing income and accelerating deductions now is appropriate if you expect next year’s tax situation to be similar to this year’s.
Here’s a checklist of actions that may help you save taxes if you act before year-end:
- Invest in capital assets:Business equipment can be deducted partially or in full from your gross income, depending on several factors. Check with your tax professional for how much you’d be able to deduct on capital assets.
- Establish a medical reimbursement plan:These plans allow you to pay your employees’ out-of-pocket medical expenses, such as insurance premiums. Your employee does not report that amount as income, which means you get to enjoy a tax deduction.
- Boost business expenses:To get a larger deduction on this year’s taxes, you may want to stock up on business supplies you know you will need next year.
- Consider setting up a retirement plan by December 31:There are several plans to consider, but the important thing is that it must be active by year-end to permit deductions for contributions, which can be made up to the tax filing deadline in the year after you set up your plan and every year after that.
- Apply for a “Solo (K)”:For owner-only businesses, consider a “Solo (K)” – a simplified version of a 401(k) with a higher contribution limit than a SEP or Simple IRA.
- Claim home office expenses:If you have a home office, keep records to show that the space is used regularly and exclusively as your principal place of business. For more guidance, check with the IRS.
- Keep records of your business mileage:Record your mileage for each business trip. It’s important to note the date, purpose, contacts and other details of the trip. Standard mileage rates vary from year to year, so check with the IRS on this year’s rate.
Not all of these actions will apply to your particular business situation, but you’ll likely benefit from many of them. Remember that tax considerations are only one of the factors you should review before implementing any strategies. If you have questions regarding your specific situation, please schedule an appointment with your Senior Tax Advisor as soon as you can.
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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.