Operating a small business is more than just opening the door and inviting customers into your establishment. As a small business owner, you are the mechanic, housekeeper, bookkeeper and any other job that falls somewhere in the spectrum. A small business owner must learn about payroll tax, sales tax and income tax to avoid problems with the Internal Revenue Service. In addition to learning how to collect and pay these taxes, small business owners must learn how to complete and file the corresponding tax forms. Even those owners who retain the services of a bookkeeper or accountant to take care of the accounting for the business will benefit from knowing these year-end tax tips for small businesses.
1. Delay income – If you have had a profitable year, consider delaying any income due in December until January. Any income you can defer until January will reduce the amount of taxes you owe for the current year. Consult with your CPA to develop a deferral strategy.
2. Max out contributions to retirement plans – By contributing to your retirement plan before the end of the current tax year, you can reduce your taxable income. Depending on the type of retirement plan, 401(k), KEOGH plan, Roth IRA, etc., deadlines for contributions may be earlier than December 31st. Check your plan to make sure that you meet the contribution deadline.
3. Get organized – Well before the end of the year, all accounts should be balanced and reconciled. Furthermore, all receipts should be itemized and match to their corresponding expenses. Knowing how your business performed during the year including income and expenses is essential to making year-end tax decisions such as buying new equipment, increasing expenses, delaying income, etc.
4. Purchase business assets before the end of the year – If you need business equipment, office equipment or other business assets, purchasing them before the end of the year will net you profitable tax deductions. Your tax preparer can advise you if there are special tax deductions for the current year that would decrease your taxes even more.
5. File all returns and reports before the deadlines – Small businesses have multiple returns and reports that are due at various times after the end of the year. Missing filing deadlines can be very costly in penalties and interest. Write down all filing deadlines and check periodically to ensure you file year-end tax returns before the deadlines.