Tax Planning for Your Business
The fourth quarter of the year is here, which means that now’s the time to be thinking about taxes. While we know that taxes don’t come due until each April here in the U.S. (with extensions that can be made for businesses until October), NOW is truly when a business needs to be thinking and planning for taxes. Waiting until the last minute means rushing and missing obvious things that could be deducted.
So, in order to help you plan this year, we’ve decided to give you a list of items you can utilize for tax planning in your business:
- Upgrade equipment or vehicles – don’t waste money but if there’s a piece of equipment or a vehicle that you’ve been repairing over the years, then upgrade it and cut your losses.
- Buy equipment – if there is a piece equipment that will make your jobs easier and allow you to be more efficient (and profitable), buy it!
- Max out retirement accounts – use excess cash (from your profit account) to put the money back in your pocket, not the government’s.
- Put dependent(s) to work – you can pay a dependent up to $12,000 annually and it will not be taxable to the federal government (but may be subject to state taxes).
- Start a Roth IRA – by starting a Roth IRA for your dependent(s) and contribute up to $6,000 a year, you will not only allow your dependents to start saving with tax free retirement down the road (which will give them a huge advantage in their adult life), but you can also use it as a write off.
- Issue 1099’s – there are advantages to having 1099 subcontractors verses employees. You should also consider doing this for dependents — but only up to $600 so you don’t have to issue a 1099-NEC to them.
- Rent out your home – have you ever heard of the Masters? The IRS put a rule into effect, called the Augusta Rule, which allows individuals to rent out their homes for up to 14 days a year without paying tax on the income. If you use your home to host vendors or staff appreciation parties, take advantage of this write off. Note: You’ll need to find a fair market value rent rate for the area and document the usage.
- Watch tax brackets – while there is only a 2% difference between a 22% and a 24% tax bracket, if you can stay in the 22% bracket by using the items above – do it! Jumping up to a different tax bracket (unexpectedly) can reduce the profitability in your business (and your pocket). Side note: evaluate your business quarterly to stay on top of profitability and tax bracket for the year – this will help you plan for the unexpected.
- Reimburse for cell phone usage – if employees use cell phones on company time for company communication, then reimburse them. This is a non-taxable reimbursement, that can be run through payroll or on an annual check. Pro Tip – It’s also a nice perk when discussing raises with employees.
While these are just a few tax exemptions that you can take advantage of for your business, there’s one more thing you can do to ensure that you are taking a step in the right direction in utilizing all the exemptions for your business – meet with your CPA!
Year End Meeting With Your CPA
In our experience, far too many business owners don’t take the critical step of meeting with their CPA before year-end. Waiting until a new fiscal year to review your estimated tax liability with your CPA is a HUGE mistake. Meet with your CPA before the close of each year so you can make tax advantageous moves after year-end compared to beforehand and so you will know your approximate tax liability with as much notice as possible. Your CPA should be there for you year round, so don’t just meet with them once a year at tax time!
Year end is coming whether you are prepared or not, so why not be prepared. Set aside time and to get a handle on your books and meet with your CPA.
When it comes to your numbers – there’s no room for error. A firm grasp on your financials earns you a firm grasp on your business. Without it, you’re simply guessing and hoping for the best. Don’t take any chances – contact The Green Executive® for a clearer picture of what’s going on within your business’s financials.
If you’d like to stay on top of things year round and take advantage of as many tax incentives as possible, here’s a few more things you can do during the year:
- Make sure you reconcile QuickBooks – it’s important to reconcile all of your accounts not just your bank accounts. Any account that you get a statement for that has a beginning and ending balance should be reconciled. Make sure to reconcile all bank accounts, credit cards, loans, lines of credit and even your payroll liabilities. Note: If you aren’t using QuickBooks in your business, but a different software (or paper), then no matter the system, get those accounts reconciled.
- Review all “Ask My Accountant” questions – any questionable transactions that you are not sure how to handle should be put into the QuickBooks account called Ask My Accountant. This feature organizes all of your questions into one spot making them easy to find and review, so before you send your QuickBooks file to your CPA for tax preparation, make sure you review these questionable transactions with your bookkeeper. If your bookkeeper is unsure of how to handle any of the questionable transactions then bring them to your CPA during your next meeting.
- Review asset accounts – a common bookkeeping mistake is to book transactions to asset accounts that don’t belong there. Mistakes can happen when posting transactions, so quickly scroll through the details of each asset account to look for suspicious transactions that may have been recorded incorrectly. Tip: Check with your CPA for guidelines on a threshold amount that you may want to set for considering purchases as assets and if anything is questionable, post it to Ask My Accountant and review with your CPA.
- Clean up AR And AP – there’s nothing worse than having a balance in accounts payable or accounts receivable due to bad bookkeeping procedures. Neglecting receivables and payables leads to items being unattended to and causes inaccurate balances. By staying on top of your AR with regular reporting, and sending statements to any customers with overdue balances, you are decreasing the risk of this happening. As for AP, make sure to use the enter bills and pay bills functions in QuickBooks and be certain that you understand how to properly apply credits.
Have questions? Book a call with Sahra Linnemann at The Green Executive® and let her assist you in making sure the backbone of your books is structured to meet your needs.