We know our customers who make major purchases such as process chillers, have to plan out their strategy before pruchasing. The end of year is a great time for small businesses to make a big purchase for the upcoming year. By December, most companies have a pretty good idea of how their business is doing, which makes for easy strategizing to lower taxes and maximize profits in the future.
Here are the top 5 tips for lowering your business tax next year:
Making sure there is good cash flow is vital to any small business. Keeping track of how much debt you have will give you a good idea of how much money you should set aside, or borrow for taxes for the next year. If you have an accountant, it’s also a good idea to talk with him or her and get their thoughts about estimating quarterly taxes for the upcoming year. Doing this will allow you to distribute some of your tax burden throughout the year, instead of having to make a large tax payment in April.
2. Save for Retirement:
On top of IRA contributions, small business owners can have several options for employer retirement savings plans. Each plan may differ in the amount an employer and employee can contribute in their available investment options, but whatever the plan…contributions made for yourself and your employees may be tax-deductible. Some small businesses may also be eligible for a tax credit which will help the cost of starting certain retirement plans.
3. Purchase New Equipment:
Businesses can potentially be entitled to up to a $510,000 federal tax deduction for the purchase of equipment, office furniture and off-the-shelf software. This tax break helps to benefit small businesses. To qualify for this type of deduction, you must finance or purchase the equipment and put it into service before the last day of the year.
4. Defer Revenues / Accelerate Expenses:
If your company operates on a cash basis for tax purposes and your profits are looking to be high this year, you can take steps to defer revenue during the last part of the year. This can help reduce your taxable income. Billing in late December, or delaying the delivery of certain products or services until January, can also be beneficial. Paying some of next year’s costs in advance is another helpful tip. If you expect your business to be more profitable next year, you might consider accelerating cash collection this year and delaying deductible expenses until the beginning of the new year.
Donating cash, sponsoring a charitable event, donating equipment or services to a charity are also great ideas. Donations can fulfill your goal for corporate social responsibility, while engaging your employees in something meaningful. Donations count as tax deduction for your business, based on the value of what was donated.
There are many ways to help financially prepare your business for the upcoming year. Take some time, do your research, and you will be amazed at the money you can save with just a few simple steps!