You may be overlooking one of the easiest ways to boost your business’s profits. The best part? It doesn’t require any drastic changes to your business model, your products, or your services.
I’m talking about taxes!
Like any other area of your business, taxes can be managed. When you learn to do this well, you end up saving a fortune.
Here are some top tax tips to consider implementing as soon as possible:
1. Put Your Business in the Right Entity
One of my clients was paying an additional $45,000 to the IRS per year, simply because they had their business in the wrong entity. Confirm with your tax advisor that your business is set up correctly!
2. Have a Basic Understanding of the US Tax Code
You don’t need to be a tax expert—far from it. You just need to have a very elementary understanding of how taxes work, how your income is taxed, and most importantly, when to call a tax professional.
3. Shift Income to Future Years
If you’re in your peak earning years, try to shift some of your income to a year when you’re in a lower tax bracket. There are many ways to achieve this—retirement plans, annuities, collecting receivables in January rather than December, and so on.
4. Prepay Expenses/Accelerate Deductions
Thanks to the IRS’ safe-harbor rule, cash-basis taxpayers can prepay and deduct business expenses up to 12 months in advance. If you’re accelerating deductions, review your income statement and see what can be paid before December 31st!
5. Use a Credit Card to Pay for Expenses
Doing this allows you to take a deduction in the year the expense is charged to your card, which isn’t necessarily the year you pay the bill!
6. Shift Income to Family Members/Employees
Shifting some of your business’s income to someone in a lower tax bracket helps reduce not just your business’s tax burden but also the overall amount of taxes paid.
7. Turn After-Tax Expenses Into Tax-Deductible Items
If you’ve got a side hustle, maximize your tax savings by deducting items on an after-tax basis.
8. Set Up a Medical Reimbursement Plan (MRP)
Have a family-owned business? Implement a medical reimbursement plan to reduce your tax liability. If your business isn’t family-owned, you might opt for a health savings account instead to avoid discrimination.
9. Take the Home Office Deduction
Do you work outside your main office? You could claim a home office deduction of up to $5 per square foot for space that is separate from your principal place of business.
10. Rent Your Home to Your Business
If you rent your home to your business for 15 or fewer days during the year, you can deduct the rental expense, and you aren’t required to report the income earned!
11. Keep Receipts for All Business Meals
Be sure to scan your receipts and keep them filed away. You’ll want to have the proper documentation in place in the event of an IRS audit.
12. Pay Property Taxes in December
If you pay property taxes by year-end, you can claim them on your next tax return rather than waiting another 12 months.
13. Create a Retirement Plan
Speak to your tax advisor about implementing a retirement plan that not only improves your benefits package but also helps you save more money in taxes!
14. Buy Your New Equipment This Year
If your business needs new equipment, make sure you purchase it before the end of the year. This will allow you to claim bonus depreciation on this year’s return!
15. Make That Overdue Property Improvement
Certain improvements to the place you rent—such as HVAC, roofing, fire protection, alarm systems, and other systems—are often eligible for the qualified improvement property incentive.
16. Purchase a New Business Vehicle
If you need a new car, SUV, or truck, purchasing it before year-end will allow you to take a write-off on your next tax return.
17. Write Off Old Debt and Inventory
If you have outstanding accounts you’re unlikely to collect on, write them off so you’re not paying taxes on them. Similarly, if you’ve built up significant inventory you’re struggling to move, sell or donate it!
18. Don’t Miss Out on the 20% Business Deduction
Since 2018, only 80% of qualified business income is taxed. Be sure to consult with your tax advisor on how to qualify, as there are certain limitations.
19. Strategically Plan Your Next Business Trip
You don’t have to be working around the clock to write off a business trip. Talk with your tax advisor on how to log personal days during your travel.
20. Deduct Cell Phone Expenses
Small business owners can deduct the portion of the cell phone bill that is used for business. You might also consider providing cell phones to employees as an additional benefit!
21. Create a Reimbursement Plan
Put a plan together that allows employees to turn in business expenses and get reimbursed. This allows you to take a deduction, and your employees won’t have to pick up extra income!