When it comes to overseeing their companies’ finances, small company owners have a lot of daily duties. If you have staff, you may need to know how to conduct payroll in addition to small business bookkeeping. Small business taxes are another consideration, and they may be difficult to understand for the typical small business owner.
Following basic tax advice for small businesses might help you save time and effort when filing your taxes. Consider the following techniques to help guarantee a seamless process.
One of the wisest things you can do is hire a company that provides tax services to manage your small business’s taxes. These tax experts make it their business to know all the ins and outs of the tax code as it changes, so you can be certain that no important information or dates will be overlooked.
If you can outsource this essential part of your company, you’ll not only be able to save money, but also focus on other matters of greater significance.
Benefit from Depreciation Bonus Claims
Your company probably has several long-term assets, such as computers, equipment, furniture, etc. It is customary to depreciate such assets throughout their expected lifespan under tax legislation. However, if you qualify for bonus depreciation, you may exclude the whole amount from your taxable income in 2022.
Prioritize making any purchases, upgrades, or tenant improvements before the end of the year. But beware, not all assets are eligible for bonus depreciation. The structure of a building or any part of it is ineligible.
The property must also be “placed in service,” or put to practical use, by the end of 2022. This means that if you purchase a laptop on December 30 but don’t get it until January 2023, you won’t be able to deduct the cost of the laptop until 2023.
Increase Expenses and Delay Income
For tax reasons, most small business owners use cash basis accounting, which opens up many doors for strategic tax planning. According to the cash approach, earnings are tallied at receipt and expenditures upon settlement. To reduce your tax liability this year, see whether you can defer any income into next year or frontload any costs into this year.
For illustration’s sake, let’s say you completed a job for a customer in December 2022 but have yet to send an invoice. Your customer won’t pay you until January 2023 if you don’t send them an invoice until then, so there’s no need to report the money when you file your taxes in 2022.
Similarly, suppose you want to send members of your team to a conference next year. Instead of paying those registration costs in March of 2023, if you pay them in December of 2022, you may take the deduction this year.
Contribute to Charity
Most often, only C-corporations can claim a tax deduction for charitable donations. But the tax advantage of those donations doesn’t go away. Instead, they’re reported on the individual tax return of the firm owner.
The deduction is often only useful if you itemize your deductions rather than just taking the standard deduction. Schedule 1 “adjustment to income” for non-itemizers is now $300 thanks to the Coronavirus Aid, Relief, and Economic Security Act (CARES).
Just remember that the $300 deduction for non-itemizers is limited to monetary gifts made to approved charities. Non-cash donations, such as cars, clothes, or household goods, do not qualify for non-itemizers. But itemizers may still deduct gifts that don’t cash on Schedule A.
Claim the Credit for Employee Retention
The Employee Retention Credit was also introduced under the CARES act. By offering a credit against the employer’s part of payroll taxes, the bill encouraged companies to keep workers on the payroll during the epidemic. Since this is a refundable credit, any excess above your quarterly payroll tax payment may be refunded to the company.
Each employee might get up to 70% of their first $10,000 in quarterly eligible pay. Your company must meet these requirements to get the credit:
- As a result of a government order issued during the pandemic, have either temporarily or permanently halted their activities.
- Suffered a drop in sales of 50% or more over the same period last year.
- To qualify as a “recovery startup,” your company must have been established after February 15, 2020, and have yearly gross sales of less than $1 million.
Every company and individual tax situation is different, and determining whether these tax tactics are appropriate for you may be difficult. Don’t hesitate to consult professional tax experts for assistance if you need it. They will be able to assist you with minimizing your taxable income for the current year, as well as suggest additional strategies for doing so.