Being a small business owner is no small feat. We empathize with the struggles each small business has gone through in 2020 just to stay afloat amidst all the shutdowns and the ongoing pandemic. With tax season right around the corner, MKA is here to help ensure that you do not pay more than you owe. We know that every penny counts this tax season, but did you know that in a survey, 93% of small business owners had overpaid their taxes for over a decade? Let’s put a stop to that with the following tips to help you and your business save!
1. Utilize the tax services offered by MKA
Is MKA working for you and your business yet? If not, let us help you take your mind of the stress of tax season so you can focus on your business operations as we enter the busy holiday season! So, why should you hire MKA for your tax planning?
- Countless business owners try doing their own taxes each year and end up overpaying.
- MKA can help you minimize your tax liabilities and ensure tax efficiency.
- Your business will be able to stay up to date on tax law, and benefit from MKA’s year-round tax strategy that works to provide your business with the highest return that the law allows.
- Ready to let MKA take over your taxes? Click here to get in contact with us today!
2. Keep those receipts
Receipts create a financial dashboard of how your business spent funds throughout the year. Instead of throwing those receipts in the trash, use them to get money back!
- Receipts for goods and services that can be deducted on your business’s taxes, thus offsetting the taxable income.
- I know what you all are thinking, and no, we are not telling you to hoard every single receipt from the entire year. Instead, you can use a program like 1Tapreceipts, which is an app that allows you to scan your receipts onto your phone or computer. You can then store and organize these receipts to be able to document and keep track of every deduction owed to you from throughout the year.
3. Pay now, get paid back later
As a business owner, you can pay for your retirement now, and get a payoff later. Taxable income can be reduced by putting additional towards a traditional retirement account.
- This money is not taxable until funds are withdrawn in retirement in the future.
- Small businesses owners younger than the age of 50 can contribute up to $5500 per taxpayer or a traditional Roth IRA.
- Small business owner over the age of 50 can contribute up to $6500 into retirement savings.
4. Deduct your home office
Now more than ever, many of us have found that business operations are taking place in our homes. Are you currently operating your business from your home office? If yes, then I have some pretty good news for you and your business!
- You can deduct expenses related to your home office.
- These expenses can include insurance, mortgage interest payments, repairs, utilities like internet service.
- The catch, you must determine what percentage of your home is actually dedicated to running your business.
- This deduction can benefit both homeowners and renters.
5. Deduct your car expenses
Are you driving a lot for your business, visiting important clients, and making meetings? Deduct those trips!
- Again, like your home office, you need to calculate what percentage of the time your car is being used is for business.
- You can then apply that percentage to your overall car expenses.
- There are two types of these deductions: The IRS’s standard mileage deduct and your actual car expenses, which includes your insurance, gas, and repairs.
- Between these two options, figure out which one will maximize your savings!
6. Get your money’s worth from business equipment
Section 179 allows small business owners to avoid tracking depreciation on equipment by tracking that equipment as a business expense in the year it was purchased instead.
- An important note: There is an upper limit to this option of $500,000.
- Equipment encompasses anything needed to run your business. It can be anything from a forklift to an office chair.
- To determine how much you can save, you may use a Section 179 calculator.
- Another important note: Section 179 does not automatically go into effect; you must file form 4562 in order to elect it.
7. Hire family members to work for you
Do you have family member that would be able to help with your business? Well, you may want to review their resume because hiring family members can save you money when it comes to your taxes!
- Hiring family members allows you to take a business deduction for reasonable compensation paid to that family member, which lowers your business’s taxable income.
- Can also result in being able to avoid taxes such as FICA and FUTA.
8. Keep an eye out for carryovers
Did you know that when some deductions or credits are not fully used in a tax year that they are eligible to be carried over into future years?
- These deductions or credits can include capital losses, net operating losses, home office deductions, and charitable contribution deductions.
- You should always track these deductions or credits, so you do not lose them.
9. Do not sell your old equipment
Do you have old equipment that is no longer generating ROI for your business? Well, believe it or not, selling it may not make you the most money back.
- Find out if it would be better to abandon your equipment for an ordinary loss, rather than, to sell it for a capital loss.
- Ordinary loss is fully deductible.
- Find out if your equipment may be classified under Section 1231 to determine how you should get rid of it.
10. Take advantages of penalty relief is your business is eligible
If your business happens to incur an IRS penalty, you can determine if you are eligible for penalty relief. An example of possible penalties is failing to file a tax return or pay on time.
- Businesses that an be considered for penalty relief include those that tried to follow the legal requirements but were unable due to circumstances beyond their control, or those who were able to resolve an issue pointed out in their penalty notice.
- While not everyone in these two groups will qualify for relief, it is worth finding out for the possibility of money back in your pocket!