Smart Tax Reduction Strategies for Business Owners
Are you tired of expensive tax bills each tax season? Your business may lack a comprehensive tax plan. A tax plan is a proactive tax strategy designed to minimize your tax liability (the amount you owe in taxes). Your bookkeeper or CPA typically works with you during tax season (January to April) to ensure you are tax compliant (filing the tax forms, tax returns, and remitting payments). Tax compliance and a tax plan are not parallel. You want to maximize BOTH. When should you prepare your tax plan? Waiting to meet with your CPA in January is too late to create an effective and efficient tax plan. As a Small Business CFO, my goal is to help you prepare for your next tax filing, challenge a current notice, or prepare to meet with your tax accountant ahead of time. You want to meet with your tax accountant quarterly to ensure you understand:
- Your tax status.
- Your legal entity.
- Tax obligations (Federal, State, City, Municipal, Multi-state [ecommerce], etc.).
- How to maximize available tax deductions (reduces your taxable income).
- Advantageous tax credits that reduce your tax liability.
Here is a great checklist to help you prepare for your next tax filing.
1. Business Entity
Understand your business entity. Filing under the incorrect status could cost you thousands in unnecessary taxes. Locate your IRS SS4 form. The IRS issues this form (free of charge) and lists your legal entity and your tax filing forms.
2. Bank Account
Open a separate business bank account. Your business is a separate legal entity from you and should operate as such. If you have multiple businesses, each should have its own set of business bank accounts, and it is essential to reconcile them each month.
3. Organize Documents
Locate and organize your receipts. Monitoring your finances monthly saves you over $10,000 annually on taxes. Waiting until tax time, an economic pandemic, or when you need funding is way too late. Utilize accounting software.
4. Employ Dependents
Employ a family member in your business. Under the Tax Cuts and Jobs Act (TCJA), you won’t have to pay or withhold taxes up to $12,000 of their income. This strategy is only available for certain legal entities.
5. Contribution Plans
Meet with your financial advisor. Check your available retirement or contribution options. These accounts not only help you plan for retirement and legacy planning but helps reduce, eliminate, or defer your taxes.
Are you ready to prepare for tax season ahead of the tax deadline?
These are strategies we help business owners implement every day. Are you ready to save money on tax fees and reduce your tax liability by preparing for tax season ahead of time? Our “Smart Taxes” course for Solopreneurs walks you through a step-by-step process for implementing good record keeping habits, financial management and pre-tax planning. Grab your copy here:
Remember, every dollar counts.