Why would you want to think about tax strategies when the years almost over?
Year end planning is too often a missed opportunity to further improve your current tax situation and plan for maximized tax savings next year. That’s a lot of value for just one meeting with your accountant.
Most of our clients think tax strategy boils down to deductions. That makes sense, deductions are a big part of the equation. After all, the goal is to decrease your taxable income so deducting off the top is the simplest way to do that. So, let’s start with some commonly missed deductions, but make sure to read to the end, because they are just the beginning of the many ways year-end planning can save you money on taxes.
The most commonly underutilized or even completely missed deductions are with your car and mileage. If you use your personal vehicle for any reason connected to your business, then the cost of that drive is deductible. It’s very easy to overthink it and make calculating percentages and breaking down costs too complicated. The easiest and best thing you can do is track your miles. Keep a log of how many miles you drive for business purposes. A competent accountant can use that info to calculate your deductions. The truth is it’s a habit you are going to have to create for yourself. I get it. It’s not fun, but it will save you a lot of money. It’s totally worth the effort. You can do it on a simple spreadsheet and enter in the miles at the end of each day. Or go old school and mark your miles on a piece of paper kept in your car.
Travel is another commonly missed deduction. If you go anywhere for a business purpose, even if it’s only a two-hour meeting, all of your costs associated with that travel are deductible. Simply put them all under travel expenses on your books. Transportation, lodging, food, all of it! That still applies if say you happened to take your family to a theme park for 2 of the 5 days you were on your “business” trip. What you would pay for yourself to go is still deductible. Your portion of the transportation, lodging, food, etc.
Your phone costs can be deducted if you use it for business. There’s also probably a lot of supplies that you purchase that can be considered a business expense. Maybe you wrote a book, but sales suck. Consider it an advertising expense and all the costs for writing, publishing, and printing the book are deductible. It’s not too late to discover what deductions you might be missing with one year end planning session.
You’re probably paying yourself as a business owner if your business is structured correctly. If not, then you should be. You have withholdings that are associated with that pay. This is a simple thing, but very easy to forget. It’s great if you are paying your withholdings each quarter. However, some owners put off their withholdings until the end of the year and take care of it in one lump sum. Make sure that however you do it, your withholdings are accurate and current for the whole year in the fourth quarter. This way you avoid unnecessary underpayment penalties.
This strategy is an example of staying on top of the many aspects of business taxes to make sure you aren’t sending a red flag to the IRS, and it saves you cash in the form of penalty fees. That’s the main goal of everything you are wanting and everything we do, is to help you keep more cash in your bank. Whether that be through good cash management or tax saving strategies. Meeting with a professional for year end planning will ensure this doesn’t get overlooked.
This one strategy has the potential to save you over TEN THOUSAND dollars on your taxes without any extra work. It’s honestly one of our favorite strategies that we wish everyone would use.
A common business practice is to rent out facilities in order to hold board meetings and conduct important matters of business. The Internal Revenue Code 280A allows for a business to rent a home or place of residence instead of a meeting facility to conduct business. This is a tax strategy that allows an individual to rent out their home to their business.
The tax benefits come into play because the business owner is able to write off the amount as a rental expense, while you, the homeowner, are able to receive nontaxable income. Therefore, both parties benefit significantly from this tax strategy.
The general rule of thumb for determining the amount that you’re able to charge a business that you own, or control is to determine the amount that a third party (i.e. a local hotel) is currently charging. You’re able to charge an amount consistent with the current market rate of facilities located in your same area of residence. (The actual space, food/catering, video/electronic equipment, tax and gratuity)
In order to defend an audit from the IRS, you need to have an agreement to rent your residence to your corporation and also documentation that the meeting took place, like meeting minutes, who attended and what expenses were incurred.
Empowerment zones are geographical areas of high poverty that proved extra tax incentives to businesses willing to locate there. Research your local area and state and you may find an area close by where you can save money by moving your location.
Cost segregation allows real estate owners to put more of the depreciation deductions from real estate purchases in the early years of ownership. This way you save more money up front when cash is down because of the purchase.
Donation batching is where, for example, you can stack two years of donations in one year to itemize and then take the standard deduction in the next year.
Maybe your business suffered a loss because of a natural disaster. That casualty loss may be deductible.
Did you know that paying your kids can be a tax saving strategy? Ask us about it. If you’re in the right situation, then this could be an amazing strategy for you.
We’ve only mentioned 7 items on a long list of 28 that we created of tax saving strategies we wanted to stay on top of for our year end planning clients.
It’s not too late to take advantage of these tax saving opportunities. You deserve to keep your hard-earned money.
Deductions and loopholes are not the only ways to save on taxes.
Check out our list!
We crammed a lot of savings onto two pages.
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