If the festive season is here, how far can the tax season be?
The T word that frightens most of the small business owners who are not experts in the finance is TAX. However, it is a crucial aspect to maintaining a business. To keep the last minute stress surrounding tax filing at bay, start preparing for the financial year ending right away.
The sooner you start to prepare for the year end closing, you have more time to strategize on the possible deductions and research on tax cuts that are possible for your business.
Here are a few tips that can help you have a healthy fiscal year closing for your small business.
Tax Software, is it for Novice?
Having a tax planning software seems like the most basic things when you own a small business, but many small business owners think they are beyond these software’s if they have expert knowledge in tax filing or have hired experts. But, that’s not true.
Tax filing with papers can increase the probability of error from 1% to 21%. So, ditch the papers! A small miss in the expenses can drastically affect the tax payable. Hence, spend your money to hire a very good tax professional and maybe a bookkeeper too, of course along with a software like TurboTax.
Pay to Retirement Account
The retirement money for a small business owner varies from $5500 if they are below the age of 50 and $6500 if they are above 50. Combine your IRA with retirement plans such as 401(K) to contribute more than $55,000 per year to your retirement fund.
If you find yourself above the upper thresholds of taxable income, try shifting to the lower threshold by contributing more to the retirement account. These strategies around retirement account helps both during tax cuts and securing your future with higher retirement funds.
Prepay your Expenses
To reduce tax for the year of 2018, why not prepay your recurring expenses for 2019 through your credit card. This will allow you to claim the tax reduction using the credit card bills and the money can also be paid during 2019.
Another great tip for maximizing your tax profit is prepaying through checks and mailing them. As per the tax rules, you can deduct the expenses in the year you send the check mails. This will allow you to claim this expense even if the check is not cashed or deposited till the next year.
Any revenue that is due in December can be pushed to January. Reduce cash inflow to your company’s bank account during the last few weeks of December. This will allow you to in turn reduce the tax for all this revenue. If the revenue is postponed to January, then it will account to the taxable income of 2019 and not 2018.
Though this is a great idea to cut taxes, make sure it doesn’t backfire and negatively affect your business by deferring income.
Also try sending invoices late in December so that you receive your payment in January.
Detect Carryover Tax Deductions
Usually for a small business, deductions for capital losses, home office deduction, charitable donation and net operational losses are some of the tax deduction opportunities that can be carried over to the future years.
Hence, it is vital for you to keep track of all the possible deductions that can be carried forward. We know it is not an easy job to keep track of year old data, but when it comes to gaining some extra tax cut, the effort is worth it.
Running a small business and maintaining the small business’s accounts is not easy and it gets especially difficult during the end of year. But the year-end stress for closing books and filing tax can be considerably reduced if we plan ahead for the coming year.
Split the accounting process periodically throughout the year and adapt software’s that can help you achieve accurate and quick accounting without any hassle.
Incorporate the above tips in your tax filing strategy from next year to considerably reduce the tax you pay for your business and to have a happy tax season!