Our firm does not do taxes, although I did them for 12 years. When I started my practice, that was a service I just didn’t want to offer. However, we partner with CPAs and other tax professionals to ensure that the guidance we provide to our clients is in line with the advice that their tax professional provides.
As part of that guide, there are some tax advantages that most business owners don’t know about or just don’t take advantage of. There are also some “deductions” to avoid due to wrong tax information. Here is a list of the five most common.
Track all expenses consistently
Keep track of all your expenses, including those you pay yourself. Business owners always ask me “what about the things I paid for with my personal credit card?” Yes, everything is deductible; you just need to get it in the accounting records and account for it. Note that the credit card is personal, so do not add that account to your chart of accounts. They will count as contributions from the owner or the shareholder. TIP: Record these charges monthly so you don’t forget them at the end of the year.
Avoid money leaks
As a small business owner, you are sometimes faced with cash flow problems. As a result, you fall behind in paying your bills and taxes. While your provider may not assess late fees, you better believe that the IRS will do so in the form of penalties and interest. And these my friend are not deductible. No, not even the part of interest. TIP: Plug this money drain by paying your taxes on time and use those funds for a deductible expense.
Maximize Retirement Contributions
Most small business owners are so busy working on their businesses that they never stop to think about what they will do once they retire. I’m not even sure you’re thinking of retiring. But the fact is, you will, someday. So you have to make sure you have some kind of savings. There are several retirement plan options that will allow you to set aside some tax-free funds for your retirement, all of which are tax deductible for the business. Yes, you can have your own company retirement plan. Cool right? TIP: Contact your tax advisor and financial advisor to discuss retirement plan options.
Expenses paid personally
I can’t say enough: stop mixing your personal expenses through business. They are not tax deductible and we accountants know when you are trying to do so. Believe it or not, we are smarter than the average bear. TIP: Don’t mix.
The IRS allows you to expense the purchase of a major fixed asset for the first year instead of depreciating it, as long as you meet certain requirements. You can deduct up to $ 500,000 and reduce your taxable income to zero. TIP: If you can, don’t buy any gear until December so you can buy enough and not too much.
What tax tips have you taken advantage of to help keep more money in your business?