Tax time can be stressful for small business owners—especially if this is your first time filing as a business owner. Even if you've kept immaculate records, there are some tips and tricks to finding deductions and savings.
1. Pay attention to carryovers
Some of your deductions will have limits that can stop you from using them in the current tax year, but may be available to carryover to future filings. Keep track of these with a tax or accounting software so you know when they're available to use.
Some examples of carryovers include:
- Home office deductions
- Charitable contributions
- Capital losses
2. Use a tax software that finds deductions for you
Is your business home-based? Do you drive for business, or take clients to lunch or dinner? All of these little things include deductions that can help you save on your returns by factoring in insurance costs, gas costs and food expenses. In addition, there are industry-specific deductions that apply to your business—this is where you need tax software or CPA that can find them for you.
3. Implement a 401(k) before the year ends
With a well-structured 401(k), you can deduct up to $50,000 with matching. Your payroll level as owner will determine if you can utilize this deduction, so it's helpful to speak with a retirement planning agent early in the process. You won't pay taxes on contributions to a retirement plan, so this can save you in the short-term.
4. Use independent contractors when possible
If you're a small business, hiring might be difficult because you have to pay for benefits and payroll taxes. With independent contractors, you're exempt from these payments and can save on your year-end taxes.
5. Identify invaluable property
If you or your business owns property that doesn't add value, you might benefit from abandoning it rather than selling it. This way, the business would take an ordinary loss on the property versus a capital loss. An ordinary loss will be fully deductible whereas a capital loss will have some limits.
6. Change your business structure
If you're operating as a sole proprietorship or LLC, you may want to look into being taxed as an S corporation. In this scenario, the owner's salary is the only amount that is subjected to FICA tax. Otherwise, the self-employment tax is applied to net earnings, making your tax payment much higher.
7. Decide on depreciations
You have options when it comes to deducting costs for your small business. You can deduct purchases of new machinery and equipment up to $500,000, but you can also choose to use depreciation for items purchased over time.
8. Pay attention to your adjusted gross income
Many small business tax breaks are derived from your adjusted gross income. Making sure you keep thorough accounts on your books is vital for calculating AGI at the end of the year, and could mean the difference between a large and small costs.
9. Keep business and personal finances separate
This should be a part of your small business plan, but keeping you and your family's finances separate from your business finances is vital for certain business-only tax deductions. In general, it will also be easier to file your taxes once April comes around.
10. Hire a professional
One of your best resources can be a licensed CPA, or even a local H&R Block. They have years of experience finding deductions for your small business, so they can dig up savings that you might not even know you apply for.
Tax season can be daunting, but it's important to keep a record of every expense throughout the year to make filing your small business taxes as simple as possible.