Business owners, it’s not too late to make a big dent in your tax liability for 2020. To get you started, here are some important year-end business tax tips:
1. Tax Planning
Be proactive and schedule an appointment with your tax advisor well before year-end so you know what to expect come tax time. If you expect to owe, consider the following strategies to minimize your tax liability.
2. Explore Tax Credits & Deductions
There are a slew of tax credits and deductions available for small businesses. For example, there are tax credits for starting a small employer pension plan, making improvements to your facility so that it is accessible to people with disabilities, and the list goes on and on. Get a strategic tax planning meeting setup with your tax advisor to explore ways to minimize your tax liability through tax credits and deductions.
3. Consider Equipment Purchases
Take advantage of bonus depreciation and Section 179 of the Internal Revenue Code which allow you to take a current deduction for equipment purchases rather than depreciating it over multiple years. Limitations may apply so be sure to discuss this with your tax advisor.
4. Accelerate Expenses
Now is the time to spend money on items your business needs in order to maximize deductions. Pay bonuses to your employees, cut checks for current invoices and stock up on supplies. This maneuver may not be appropriate for all taxpayers so visit with your accountant to discuss whether or not it makes sense to accelerate expenses to cut your tax bill.
5. Defer Revenue
Any income received by December 31 counts as revenue for the current year. Shifting income to after January 1 delays it from being considered as income until the following year, and this could save you a significant amount of money in the current tax year. This maneuver may not be appropriate for all taxpayers so ask your accountant if it makes sense to defer revenue until January to cut your tax bill.
6. Reduce Inventory
Reducing inventory could reduce the businesses taxable income. This may depend on the accounting method you use, so make sure you check with your accountant to see if this makes sense for your business.
7. Contribute to a Retirement Plan
Contribute to your retirement plan or set one up before December 31 to reduce your income for this year. Now is the time to max out your contributions. If you haven't yet set up a retirement account, talk to a financial advisor to determine which plan is best for your business.
8. Get Charitable
Not only is making a charitable contribution from your small business a great thing to do during the holiday season, but your business can also benefit from it. You can also donate items such as clothing, toys and other goods, and claim a deduction. Be sure to get proper documentation and a receipt for your records. There are limitations so be sure to discuss this with your tax advisor.
9. Host a Holiday Party at Your Home and Save Tax!
Many businesses are structured as some form of legal entity (corporation, S corporation, limited liability company, etc.) which can have meetings wherever they choose - including the home of a shareholder, partner, etc. and generally speaking, you can rent your home (or a room) for 14 days (or fewer) each year tax-free.
10. Hire a Family Member or Child
One of the advantages of operating your own business is that you can decide to hire your own family members (or not). That family member can be a spouse, sibling, parent, or even a child. In fact, while hiring a child may not have crossed your mind, if you play by the rules, there can be a surprisingly broad array of tax (and other) benefits of doing so. Again, visit with your tax advisor to be sure this strategy is appropriate for you.
Any tax advice in this email reflects our professional judgment based on our understanding of the facts provided to us and on current tax law. Tax law is subject to change. Subsequent changes in the facts provided to us, the law, or its interpretation may affect this advice. We are not responsible for updating our advice for subsequent changes in law or its interpretation.