As a small business owner, you’re aware that tax preparation can be a perpetual nightmare, particularly during the early stages. You need to manage all possible tax breaks to reduce tax liabilities for your business, without conflicting with the IRS. You could rack up even bigger savings than you might be aware of. Here are a few ways to do that.
1. Donate to charity - Year-end tax planning is crucial when it comes to managing exactly what you are expected to owe and strategically reducing it. One way to do this is to make philanthropy a big part of what you’re doing. Firms that are giving back to their community can take big tax write-offs. A good rule of thumb is 10 percent. Devote 10 percent of your total income to charitable causes, and this will help eliminate a lot of extra taxation. Note, this will only benefit you if you itemize your deductions.
2. Accelerate deductions and defer income - The final quarter of 2017 is a great time of year to start deferring income and accelerating deductions. Despite the uncertainty and speculations about how any possible tax reforms will impact business owners, given the current political climate, it’s more likely that taxes on businesses will fall instead of increase. If you’re a sole proprietor, LLC, partnership or S-Corporation, it makes sense to accelerate your deductions in the current year and defer income into 2018 to maximize the anticipated lower tax rates.
3. Save for healthcare needs – One of the best ways to reduce small business taxes is by putting aside money for healthcare needs. Medical costs continue to increase and while you may be healthy now, saving money for unexpected or future healthcare needs is essential. You can accomplish this through a Health Savings Account (HSA) if you have an eligible high-deductible health plan. (For more, see: IRS 2017 HSA Deduction Limits.)
4. Set up a retirement savings plan - As a small business owner, you give up a 401(k) match. You may miss the free money available through the match though there are several retirement account options that maximize retirement savings and reap valuable tax benefits. For example, with the Individual 401(k), the IRS allows you to put away up to $53,000 for retirement. Some of those retirement planning vehicles are: (For more, see: Differences Between Traditional IRA vs. SEP Contribution)
It is important to point out, in the case of Independent 401(k)s, you must open them by December 31st to qualify for the current tax year.
5. Use tax-free ways to extract income from your business.
While salary, bonuses, and distributions of your share of business profits are taxable, there are ways in which you can possibly benefit from your business’ success without triggering tax. Consider talking to your accountant about:
If you’d like to talk with us more about your business taxes, contact us at 727-845-4166 or call for an appointment in our Trinity, Land O Lakes or Tampa offices.