With the end of year quickly approaching it’s time to consider whether you are taking advantage of the many ways you can reduce your small business tax bill. Here are seven ways you can take advantage of tax breaks before the year is through. Be sure that you follow up with your CPA or tax adviser before implementing this advice.
7 Tax Saving Strategies
- Pay your January bills in December- Invoices that are normally due in January can be paid in December. These could be expenses like rent and utilities or even payments to freelancers and subcontractors. This helps you raise your expenses for the year, which lowers your taxable earnings for 2014.
- Implement systems or purchase software– If you’re already planning on changing company software, upgrading existing systems, or implementing additional software in early 2015, just pull in the purchase to December. Purchasing, upgrading, and implementing new software before December 31 will count towards your business expenses and lower your small business taxable income. Not only do you get to take advantage of new software functionality sooner, you’ll be able to claim it as a section 179 deduction if it’s off the shelf.
- Purchase training programs in advance – Do you already know you will be implementing new software, procedures, or processes in the New Year? Sign contracts and pre-pay for training program in December. According to IRS publication 970, if you are self-employed, you deduct your expenses for qualifying work-related education directly from your self-employment income. This reduces the amount of your income subject to both income tax and self-employment tax.
- Throw a holiday party- Throwing a holiday party for staff, clients, potential clients and business associates can go a long way to reducing your taxable income as long as it isn’t lavish or extraordinary. Not only will your staff, clients, and business associates be impressed with the generosity of your holiday event, you’ll be able to deduct 50% (if there is a direct relation to getting more business) or even 100% (if it’s for your employees) of the meal and entertainment expenses according to IRS publication 463.
- Buy your clients holiday gifts- Yet another great and fun way to save yourself money, the purchase of holiday gifts for your clients can be partially written off as a business expense. If you’re providing the gift to an individual the maximum amount of the deduction is $25 according to IRS publication 463. However, if you’re providing the gift to the entire company you can write off more. This double whammy allows you to not only lower your taxable income; it builds client relationships that will help increase your profit margins in the future.
- Donate to charity- Donations to registered charities are a great tax deductible way to contribute to the community you do business in. Giving back to the community that supports you sees not only the money you save in tax breaks, it recognizes you as a business who cares and can foster future client relationships which affect your bottom line.
- Take advantage of NOLs- Your 2014 net operating losses (NOL) can be carried back for up to two years in order to help you in recovering taxes paid in previous years. They may also be carried ahead for up to 20 years if you think your future tax rates will increase. NOLs occur when your business expenses exceed your taxable income for any given year, except for the Section 179 depreciation deductible, and can create situations where you recover taxes from previous years or create a NOL for the existing tax year.
Be sure to take advantage of these, and the many other great deductions which can help save your business money. As with all business expenses, be sure to keep all receipts related to any of the items indicated above as they will have to be submitted or kept on record as indicated by the laws governing your state. Happy savings!