7 Year-End Tax Planning Tips For The Small Business Owner

The year is swiftly coming to an end and as a small business owner, the time is now to consider your end of year tax planning. Doing so will help you to stay prepared, avoid mistakes and ensure you are filing correctly and in a way that is beneficial for your business. 

Being a small business owner means you operate on a smaller scale, with less employees and annual revenue than a large business or corporation. The definition of a “small” business depends on the industry you are in, but the owners of small businesses all have one thing in common: 

Small business owners are interested in ways they can lower their business’ tax liability. 

Tax season will be upon us soon and it can only benefit you to start preparing now. If you have not already started, here are some items to keep in mind: 

1.       Create a plan for paying your taxes.

As a small business owner, you likely have your hands in every part of your business. If you have been doing this for a while, you may have an idea of what your taxes will look like, but either way, we recommend you consult your accountant, so you are the most prepared you can be. 

The first line of preparation is knowing what is coming. An accountant can calculate estimated taxes and advise you on whether paying quarterly taxes is in your best interest.  

Depending on the amount you will owe, you must pay the tax as you earn or receive income during the year or you may find yourself in a situation where you have not paid enough income taxes. In this scenario, you may be subject to a penalty for underpayment. Paying taxes quarterly will also serve to distribute your tax burden throughout the year and alleviate you from a larger tax payment come April. 

2. Form a retirement plan.

Just as you may reduce your personal tax obligations by opening, or contributing more to, an IRA, you can also form a retirement savings plan and potentially benefit from tax credits. 

A Simple IRA, SEP IRA, 401(k) and profit-sharing plans are just some of the retirement savings plans available to you and your employees. Contributions you make may be tax-deductible. Consult your tax advisor. 

3. Be aware of your tax reporting designation.

Are you filing your taxes on the accrual basis or the cash basis? There are differences for each designation that you should be aware of. 

The basic distinction between the two is that the cash-basis method is more immediate, whereas the accrual-basis method takes into account anticipated earnings and expenses. With an accrual basis method of accounting, you can record income when it is earned, even if you have not actually been paid yet.  

The accrual method is more common than the cash method, but not knowing which designation you fall into can have a significant impact on decisions, like when and how to make large purchases for your business.  

4. Donate to your favorite charity.

More than just feeling good about contributing to a charity that advocates for something you care about, donating to charity can provide you with a tax deduction for your business. 

Recent limits to personal itemized deductions can affect whether you may write-off charitable donations and gifts so reviewing your tax strategy with your tax advisor is recommended. However, should you be in the position to benefit from making a charitable gift, know that the deduction is usually equal to the fair market value of the donation itself. 

5. Set up your books and records.

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Record keeping may not be the most glamorous part of small business ownership, but it is a necessary step to staying organized and prepared for each tax year. The best way to take control of your business’ finances is by having systems in place, including the storage of receipts, to ensure you are taking beneficial deductions and reporting all earned income and expenses. 

6. Keep up-to-date with law changes.

The tax law is constantly evolving and changing due to legislation and IRS rulings. Although your accountant will likely keep you abreast of changes as well, some updates can benefit you greatly and must be acted on in a timely manner. Do not wait for your accountant; instead, take ownership of any updates that may be beneficial for your business. 

7. Structure your business the correct way.

You may have set up your business as an LLC, which was the right decision for you at the time, but as you grow, another business designation may be better for you and your company. There are certain tax advantages you can earn by being a C-corp, and you would not want to miss out on those if the change to your business makes the most sense. The attorneys at Kira Doyle Law can assist in making business structure updates. 

Ask a Florida Business Attorney for Assistance

If you are a small business owner, or interested in becoming one, contact our St. Petersburg office at 727-537-6818 to schedule an appointment with one of our experienced business attorneys today! We can assist you with entity selection, business agreements, succession planning and other operational legal needs you may have.

Business LawKira Doyle