So, here we are, the end of the year, and you have a few extra dollars to spend hoping to save on taxes. You’re afraid the IRS is going to take it because, well, because the IRS sucks and you have income sitting in an account.
But before you go buy a boat and write it off as a “business expense” to save on taxes, I would suggest taking these steps first.
1. Think about how much you really want to spend
Do you really want to drop $100 Grand on a boat in order to save $10 Grand in taxes?
Well, maybe you would. At least you’d have a boat.
But, keep in mind, unless you’re a C-Corp, which you should not be, you’re going to pay taxes on your Net Income no matter how much of that income you spend. So, unless you’re a fisherman or a scuba instructor you can’t write it off as a business expense.
By the way, if you are still a C-Corp, please schedule a session with one of our Tax Geniuses so we can help you save more on taxes.
2. Do a Year-End Tax Estimate
There are only about 10 days left in 2021, so you should have enough information to do a rough estimate on how much you’ll owe for the year.
If you need some assistance with your Year-End Planning, your accountant or Incite Tax can help you with that.
Part of a year-end planning session involves providing guidance on potential ways to reduce your Net Income and lower your taxes, so it’s well worth the investment.
3. Make sure you have enough money saved in your Tax Account to pay those taxes
If you’re following the Profit First system, you should have separate accounts for your taxes, equipment, owners’ pay, etc.
If you have $10,000 in your Tax Account and you estimated that your taxes will be about $6,000, I’d feel comfortable telling you that you have about $4,000 you can play with.
Not quite enough to buy a boat.
You could potentially go on a cruise instead, but if you really want to save on taxes maybe you could pay off some vendors or put the money into marketing to grow your business.
By spending that $4,000 on your business you will reduce that $6,000 you owe in taxes.
If you’re not following Profit First the concept is the same. Know how much money you actually have saved, how much you need, and what you can afford.
4. Take a look at your Equipment Account
Is there a sufficient amount in there that you feel comfortable with in case of an emergency?
If you have some equipment suddenly break down on you, you want to make sure you have enough money in your Equipment Account to cover those expenses.
Anything over the amount you feel comfortable with you can use right now.
If you were thinking about getting some more equipment next year, do it now.
It’s money you were going to spend anyway. And by spending it on something productive for your business you will again lower that $6,000 you estimated for taxes.
5. Reward your employees
You’ve looked at your accounts, you know how much you’ll owe in taxes, you bought some new equipment for your business, and you still have an excess amount to spend. Instead of buying a boat (which you’ll have to pay sales tax on) you can still stick it to the IRS by rewarding your employees.
If you want to reward your employees with a year-end bonus or a job well done, gift cards are an easy way to do it, and it’s considered a business expense!
So, there you have it. You’ve got your taxes taken care of, some new equipment, and your employees are happy.
If you need some guidance on setting up some Profit First accounts or year-end planning, you can schedule a 15-minute session by clicking the button below.
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