Managing the front-end of a business is time consuming and often, it causes the back end to take a back seat. However, managing your money in smart and thoughtful ways can save you a small bundle every year. If you simply commit to keeping organized, these six tax strategies will help you make the most of our business’ income and manage your money intelligently:
1. Plan for retirement; pay lower taxes. No matter how large or small your business, you can and should be deferring some funds into a qualified retirement plan. Many types of plans exist, and it is important that you explore your options. Some of the most common types are 401k plan, a simplified employee pension (SEP) and a simple IRA plan. (Here is a post offering a more-detailed breakdown on retirement plans.) However, these plans all have one thing in common: they allow a tax deduction without the cash ever really leaving your possession.
2. Keep track of purchased equipment. Equipment like desktop computers, appliances and office machines are tax deductible, and usually this falls within the first year it is put into service. Section 179 allows a small business to recover all or part of the cost for equipment and furnishings in the year they are purchased and put in to service. This tax deduction on equipment purchases can be elected instead of recovering the cost via depreciation. For full details on the Section 179 Tax Deduction, check out the IRS’s Publication 946. You may also want to take a look at this site dedicated to the topic.
3. For medical expenses, consider an HSA. An HSA is a health savings account that allows you contribute income to it for any future medical expenses. A primary benefit of HSAs is that it works with your untaxed income, so you are able to make the most of your money. Another important feature is that even if you do not spend the money, you still receive the tax deduction. It’s a win-win for almost every employee. See this earlier post on reducing the cost of health care in your small business.
4. Don’t forget about the little things. Throughout the year, a business typically spends a hefty amount on printing paper, mailing expenses, office supplies and miscellaneous costs. Though these seem small in the day-to-day scheme of things, these expenses can add up. It can make a significant difference to save receipts for these items, file them appropriately and maximize your deductions.
5. Hire an accountant. An accountant can help you maximize your income and find holes where you may be losing cash. Small business accountants are taught and trained to handle small business taxes, so remembering to use their services is important. See this post on how to get the most out of your accountant and save some money too.
6. Keep track of donations. Small businesses are solicited often for local charities and fundraisers, and dishing out a sizable check every few weeks is not uncommon for some businesses. It is imperative that you keep track of these donations, as many are tax deductible. Many charities are registered institutions, and gifts made toward their organizations can be written off on your taxes.
Bert Doerhoff, CPA is the founder of Accubiz in Jefferson City, Missouri, specializing in small business accounting, wealth management and entrepreneurship. Doerhoff was chosen multiple times by CPA Digest for the “Digest 50 Award,” representing one of the top 50 CPA firms in the country and is a nation-wide speaker at business and accounting conferences. He also served as President of the State Board of Directors for the Missouri Association of Rural Education.