As a small business, you can probably use all of the income you can get in your pocket rather than having to pay it out in taxes. There are a few things that you can do to lower your tax bill for the upcoming year.
Control Your Purchases and Sales
One thing that you can do to control your tax bill is to decide which taxable year you want certain purchases and sales to go in. For instance, if you need to buy some new equipment, your decision to buy before December or wait until January may depend on how profitable your business has been. If you want to reduce your tax bill, you might rush new office purchases and put off equipment sales, to maximize your deductions.
Take Deductions for Use of Personal Equipment (Wisely)
Another area where you can push the numbers in your favor is use of personal equipment such as a home office or a car. But be careful with this— you'll need to take some strict precautions to document how often you use these personal items for business. Ask your accountant about setting up an audit-proof system for logging use of personal equipment. You'll only be able to deduct a percentage of these items, based on the percentage of time you use them for business.
Consider Setting Up a Retirement Account
Another way to reduce your tax bill is to set up a small business retirement fund, where you can store a percentage of your income to be taxed at a later date. Check out IRS Publication 560 to learn about the rules for deferring income to retirement plans as a small business, or contact a tax guru, such as RJ. Garner CPA & Associates, PLC.
While there are several tips to help you reduce your small business taxes, these can only be beneficial if they are taken at the right time and documented correctly. For instance, a poorly documented deduction can cost you money in penalties if you're audited in the future. At the same time, some tax deductions may only delay paying your tax bill to a few years down the road or push the income into a different taxable status.
The best solution is to use professional tax services to walk you through the process. They will show you the best practices for documenting your deductions. A tax accountant may also help you run the numbers to see which deductions will benefit you in the long run. For instance, an increased cash flow this year may not help if your income is projected to drop the next year. Working with the help of an experienced tax services professional, you can iron out the details for a great tax plan.