The days are getting shorter and cooler. You can smell the pumpkin spice lattes everywhere. It must be fall, y’all! At bookskeep, October through December is Tax Planning Season. We believe in being proactive, and we encourage our clients to start early and put in a little work ahead of tax season so they can take advantage of some great income tax reduction strategies.
Here are some planning moves that could help lower your tax bill for this year.
- Don’t wait, schedule a date….with your CPA.
Go in now and ask for a projection of the amount you will owe. Your CPA can give you a ballpark amount, and you won’t be in shock when tax time rolls around. Use this last quarter to get prepared. If you wait until April, there’s not much that your accountant can do to help. Review those projections at the end of the year in case you need to pay incremental estimated taxes or make additional contributions to retirement plans.
- Put away for a rainy day.
If you have big sales during the fourth quarter, save it! Put away the projected amount when there is more cash flow because you may not have it later. As Profit First Professionals, we suggest a separate savings account so you won’t be tempted to spend.
- Structure, Structure, Structure!
You may want to discuss with your CPA options related to your business structure and how it is taxed. Whether you are a sole proprietorship, limited liability company (LLC), or some other type of business structure it may be time to re-evaluate. For example, an LLC can elect to be treated as an S corporation for tax purposes. This can be a benefit to owners if their LLC is profitable and they have high self-employment taxes. Taxed as an LLC the owners will pay self-employment tax (FICA and Medicare) on all of their profits. As an S-Corporation they can pay themselves wages and will only be charged FICA and Medicare on their wages. This could result in a significant tax savings.
- Save those receipts and take the business deductions.
Deductions won’t save you as much as changing your business structure, but every little bit counts. Some of the most popular business deductions are home office, office supplies, furniture, software and subscriptions, mileage, travel, meals and entertainment, insurance premiums, retirement contributions, and telephone charges. Determine which of the tax deductions you can take on your business return. If you want to be sure that you have easy access to the receipts without all of the paper hassle, we recommend ReceiptBank. ReceiptBank is an automatic online tool that we use to save time from hand entering invoices and receipts. It also digitally stores them! Discuss your situation with your CPA or other tax adviser to make sure you have done all that is required to qualify for a specific deduction.
These are just a few of the ways you can help better situate yourself for lower taxes. Whatever you choose to do, the key is to start early—before tax season! If you wait, you’ll definitely pay for it!