For small businesses, the end of the year is a great time for a number of activities. One of the most important involves saving money on taxes. By following a few helpful steps, small business owners can save precious money and reap the rewards for the next tax season. For all inquires, it’s always recommended that you check with your tax advisor.
Donating cash, used equipment that is no longer being used, inventory or services and even sponsoring a charitable event are excellent ways to save money on your taxes. Not only are these worthwhile things to do, leaving your employees feeling good in doing something responsible, but you can also write these things off as a tax deduction.
Retirement Savings Plan
A small business owner has the option to create an employer sponsored retirement savings plan. Some of these include Simple IRA, SEP IRA and profit sharing plans. These types of retirement savings plans vary because of the amount of money both the employer and employee can contribute. No matter what type of plan is selected, any and all contributions are tax deductible, which means that a small business can receive a tax credit to help offset the cost of starting retirement plans. Many of these plans, however, must be set up prior to the end of the year, so it’s important to choose the right one.
Prepare for Tax Bill in Advance
Preparing for the tax bill well in advance can help a small business to prevent any disruptions in cash flow. This is because it gives the small business owner ample time to put aside money rather than having to rely on credit to pay the tax bill. It is also wise to speak with an accountant to determine whether it is necessary to pay estimated taxes each quarter. This protects the business against having a large bill come tax season in April.
Buy New Office Equipment
One of the best ways for any small business to save money on taxes is to buy new office equipment before the new year. This could result in considerable savings on federal taxes. Both brand new and used equipment, furniture and software can qualify the business for the savings.
Defer Revenue and Accelerate Expenses
Deferring revenue and accelerating expenses is a great way to save on taxes for small businesses. This is especially true if the business runs on a cash basis. If billing is done late in December or the delivery of certain services or products is delayed until as late as January, it can help the small business save on taxes. On the flip side, if it is suspected that the business might make even more money in the new year, it’s a good idea to accelerate revenue before year’s end and delay expense deductibles until the beginning of the next year.
Stephen Koppekin is the founder and CEO of Koppekin Consulting, Inc.