If your business is like most others, then you use a traditional fiscal calendar when calculating—and eventually paying—your taxes. However, while there are plenty of standard ways to organize and improve business bookkeeping, the accounting process affords you much more flexibility than you might have initially assumed. In fact, some people consider accounting to be as much of an art as it is a science.
When all else is equal, taking active measures to reduce your income (on paper) will reduce small business taxes. If these adjustments are taking place on paper, without directly affecting your material revenues, this means that advanced tax strategies can ultimately improve your total bottom line. Non-standard tax strategies will require you to be both legally and financially cautious, which is why you may want to consider hiring a professional accounting firm in advance. Still, regardless of whether you hire a CPA or manage your books on your own, you may want to consider each of the five strategies mentioned in this article.
Consider The Alternative Minimum Tax (AMT)
The Alternative Minimum Tax was created as a result of the Tax Cuts and Jobs Act of 2017 (TCJA) and, in some cases, can help both individuals and businesses reduce their total tax obligations. Even while using the Alternative Minimum Tax, there are many expenses that can be deducted, including charitable donations, some forms of interest expense, and even your mortgage. While this unique tax deduction will not reduce the total obligations for everybody, it can be quite useful in certain situations. Be sure to speak with your accountant about the possibility of using this unique alternative.
Look For Additional Tax Deductions
While you probably want to finish your taxes as soon as you possibly can, taking the time to scan for additional tax expense deductions will likely be worth your effort. If you own a business—especially if you are a sole proprietor—there are likely many ordinary expenses that can potentially be included as deductions. Some common deductions that people overlook include owning a car (that’s necessary for business), portions of your rent, office supplies, marketing materials, and many others. As a general rule of thumb, if an expense can be connected to your business in any clear way, that expense may be deductible.
Deduct Travel Expenses
One major way to reduce your business tax obligations is to deduct travel expenses. Unlike personal travel, business travel is fully tax deductible. If you frequently travel for business meetings, industry events, expositions, or trade shows, be sure to evaluate what you can write-off as business travel expenses. While personal travel is not tax deductible, you can likely still write-off expenses if you have a justifiable business purpose. To strategically offset your business tax bill, be sure to deduct all of your business travel expenses.
Defer Your Incomes To A Future Tax Period
Though avoiding taxes altogether is pretty much (legally) impossible, you’ll find that you’ll have some flexibility regarding when these taxes can be paid. If you are anticipating that you’ll be in a lower federal income tax bracket next year, you may want to defer some sources of income to a future date. You’ll need to be careful when making these deferrals, but it is certainly a viable option for some business owners.
Monitor Flexible Spending Accounts
Flexible spending accounts, as the term implies, will give you a significant amount of flexibility. Rather than just letting these accounts roll into the next year, it may be wise to increase spending and thus decrease your taxable income for the year. If there are things you were planning on purchasing in January—equipment, business employee benefits, etc.—it may be wise to execute these expenses sooner, rather than later.
Be Willing To Part With Losing Investments
The end of the year—especially during years where the stock market is strong in December—is a great time to sell off investments that were ultimately proven to be losers. Though it can be difficult to cut your losses after potentially years of holding a position, there is no denying that you simply cannot win them all. By selling off losing investments (such as stocks), you can effectively decrease your capital gains for the year, which will enable you to avoid capital gains taxes ranging up to 20 percent.
Accounting, especially if you are working with an outsourced accountant, is something that gives people much more flexibility than they initially assume. By considering any of the five actions mentioned above, you may be able to secure the end of year tax breaks you’ve long been searching for.