The new year is in full swing and if you’re like most small business owners, you’ve got one massive thing on your mind… taxes.
The IRS collects a whopping 3.7 trillion dollars in taxes each year and a massive chunk of that comes from business owners like you.
If you’re dreading the massive burn of a big-time payout to Uncle Sam, take a deep breath. Chances are, you qualify for more savings than you’re bargaining for.
Getting the most bang for your buck come tax season typically takes some trial and error and a lot of experience. To help reduce former and increase the latter for you, below, our team of small business experts shares 10 quick small business tax tips that could save you thousands.
1. Find a Good Bookkeeping or Accounting Solution
One of the most important small business tax tips we can give you is to keep tabs on your business’ income and expenses throughout the year. The way that most small businesses do this is by employing excellent, often digital-based bookkeeping solutions.
Online bookkeeping solutions that you’ve probably heard of include SaaS (software as a service) applications like Quickbooks and FreshBooks.
Both of these tools can sync automatically with your bank accounts which allows you to track money that’s coming in and out of your business. During that process, you can easily (and often time automatically) flag deductible expenses which make maximizing your tax deductions simple.
In addition to adopting a bookkeeping solution, you’ll also need an accounting solution.
Many people think that tools like Quickbooks have them covered unilaterally but bookkeeping software will not file your taxes.
For tax filing, you’ll need to invest in tools like TurboTax, H&R Block Online, or an in-person accounting professional (which brings us to our next point).
2. Don’t Be Opposed to Hiring an In-Person Professional
Today’s small business owners are so enamored with online tools that many don’t consider hiring an in-person accounting professional.
That can be a huge mistake.
An in-person accountant can share a number of small business tax tips that automated software can’t. They can analyze your business in a way that’s unique. They can ask you the right questions and ultimately, they may be able to save you a lot of money.
If you feel overwhelmed by your tax situation and/or feel like you may be overpaying, consulting with a real-life professional may be the solution you need.
3. Capital Expenses Count
Have you ever heard of capital expenditure deductions in reference to small business owner taxes? Many haven’t.
CapEx deductions come from investments you made in your business prior to it launching. For example, let’s say that you bought a computer in November of 2017 which you used to launch your business in February of 2018.
In this case, many business owners would assume that the investment they made in 2017 would not be deductible when they file their 2018 taxes. That assumption would be incorrect.
Capital expenditures are deductible during your first year of filing business taxes. It’s best to talk to an accountant to get the full rundown on small business tax tips regarding CapEx since certain items may not qualify.
4. Cash in on Affordable Care Act Tax Credits
The Affordable Care Act put new burdens on business owners regarding their obligation to provide healthcare to employees. While these requirements were targeted at medium to large-sized companies, some small business owners have gotten caught in the crossfire.
To relieve some of the pressure put on small business owners, ACA (affordable care act) tax credits offer up to 50% back on expenses incurred while providing employee healthcare.
You can read more about small business healthcare tax credits on the IRS website.
5. Leverage Home Office Deductions
If your business is operating out of your home, you may qualify for a home office deduction. Home office deductions enable business owners to deduct the square footage of their office space from their annual tax burden.
Most business owners will opt to utilize the simplified method of calculating home office deductions. Using the simplified method, you would simply take the square footage of your office space and multiply it by $5.00.
There is a more complex method of deducting home office expenses which takes into account actual property value and depreciation that can also be utilized. You can learn more about complex or regular home office deductions here.
6. Defer Income If It Improves Your Tax Bracket
The tax bracket you fall into as a business owner can have severe implications on how much money you owe come tax season. For example, a business owner that makes $20,000 during a year may only pay 10% in state taxes while a business owner that makes $25,000 might pay 15%.
If you’re sitting on the threshold of two tax brackets, consider deferring your income to next year.
This can be done by sending out an invoice in January as opposed to December.
7. Invest in Deductions If It Makes Sense
Similar to deferring income, investing in deductions at the end of the year can also save you a tremendous amount of money by lowering your tax bracket.
Talk to your accountant to see what makes sense, but if you are planning on investing in new equipment early next year, making that investment this year instead could bring your taxable income down enough to lower the percentage you’ll need to pay to state and federal agencies.
8. Don’t Forget About Travel and Meals (but Do Forget About Entertainment)
If your small business has you traveling on a regular basis, understand that expenses incurred while traveling are very much deductible.
These expenses include things like flights, hotels, Uber cars, taxis, and even meals.
Meals are only deductible up to 50% of their value. That’s because eating is considered a necessity whether or not you’re traveling.
While entertainment expenses used to be deductible for the purpose of business, recent tax reforms have nixed that credit. So, if you’re planning on renting out a yacht to treat your clients to a night on the water, that boat isn’t likely to reduce your tax burden.
9. Write off Your Loan’s Interest
One of the most commonly forgotten about tax deductions and something we talk frequently about when describing small business tax tips is the business loan interest deduction.
Business loan interest deductions allow many companies to write off the interest they pay to lenders.
Depending on how much money you’ve borrowed to make investments in your business, the ability to write off interest payments could save you thousands of dollars a year come tax time.
The IRS limits that amount of interest you can write off during any given tax year. The current cap is 30% of your adjusted taxable income.
If you’d like to learn more about how your business can borrow the money it needs to fulfill its potential, check out our small business loan options today!
10. Keep Close Tabs on Receipts
As a small business owner, your odds of being audited by the IRS are relatively slim. As a matter of fact, just 2.5% of small business owners get audited each year.
Considering that there are about 30 million small businesses operating today, that means that roughly 29 million businesses are going to get fast, rubber-stamp approvals from the government.
Just because your odds of getting audited are low though, doesn’t mean that they’re impossible. This is particularity true if your business brings in considerable income and is aggressive with write-offs.
To ensure that you have what you need to be able to defend yourself during an audit, always keep receipts of transactions close by. Most tax professionals recommend that you keep full records going back as far as 5 years.
If you use bookkeeping software like Quickbooks, keeping records is relatively automated. If you’re bookkeeping via spreadsheets, however, you’ll need to be proactive when it comes to archiving bank records and paper receipts.
Wrapping up Small Business Tax Tips to Learn Before April
Running a business can be expensive. Given that we specialize in providing small businesses loans, our team gets that more than most.
That’s why it’s imperative that you do everything in your power to keep your tax burden down by filing your taxes intelligently come April.
We hope that our small business tax tips above have absorbed some of that pressure you’re feeling and that they’re able to save you some money when you file.
If ever your business finds itself in need of operating income to take advantage of new opportunities, know that our team is here to help.
At Dealstruck, our aim is to not be a traditional lender but a true partner that’s invested in your success. We lend across a variety of industries and are ready to get you the money you need to maximize your success, now.
Learn more about our team and the loans we offer today!