The deadline for filing taxes is just over a month away and whether you’ve already filed or are working through the grind right now, there’s no time like the present to position yourself to minimize your tax burden – whether it’s using new credits or managing your income and expenses more efficiently.
Tip #1: Optimize Your Accounting
While some businesses are required to use the accrual method for their account, most small businesses will benefit more from cash accounting. This means recording income when you actually receive it and recording expenses when the money comes out of your account. If this is the process your business uses, you can reap rewards based on the timeline for accepting and spending money in December and January. Unless there’s a cash flow issue with the business or personal income need, your business should prepare all year for actual spending in December and deferring recent accounts receivable payment until after the first of the year. This will minimize the overall income of your business and reduce your tax liability.
Tip #2: Capturing the Health Care Tax Credit
Business owners often hear how expensive it is to hire employees, particularly because of new benefit requirements – it’s a big part of what’s led the charge toward independent contractor arrangements. However, small businesses can actually qualify for a substantial tax credit for paying employee health premiums if they line things up properly. To see if you qualify answer these questions:
- Do you have 25 or fewer full-time employees?
- Are their average annual wages less than $50,000?
- Does your business pay at least 50 percent of their self-only premiums?
- Did you purchase their plan through the Small Business Marketplace?
If the answer to all of the above is yes, this nifty credit can get you back up to 50 percent of your benefits outlay.
Tip #3: Let Upgrades Work for You
Purchasing new off-the-shelf software to upgrade your business efficiency or web presence? Buying a new business or research facility? Spending on manufacturing components or new means of transporting your products to market? Section 179 of the tax code may make the full amount of such spending, up to $500,000 tax deductible.
Tip #4: Keep Every Receipt
It’s a tip every individual taxpayer knows, but businesses tend to ignore – no matter how small, keep every receipt that relates to your operations. The first reason this is crucial is that it will help you maximize your use of existing credits and deductions. The second is that the incredibly complex tax code is evolving all the time and by discarding any receipts, you may miss out on a opportunity to take full advantage of new tax breaks at the federal, state, or local levels. As an owner, that’s less money in your pocket. As a business, that’s less flexibility with finances.