6 Tax Strategies for Business Owners for Year-End and Beyond
It’s almost December, which means holiday get-togethers, shopping, and cherishing this magical time of year. But for small business owners, taxes are probably on your mind too. With 2019 coming to a halt soon, it’s essential for small business owners to assess how they can maximize their income through tax-saving strategies.
Luckily, as a small business owner, there are a number of tax-saving strategies. Some must be done before year-end to boost the bottom line.
Here are six small business end of year tax tips:
1 – Implement Small Business Retirement Account As Soon as Possible
Small business owners have several options for setting up and contributing to retirement savings plans for their business. They include:
- SIMPLE IRA
- SEP IRA
- 401(k) and other qualified plans
Each type of plan differs in the due date for setting up and contributing to the plan, contribution maximums, and other requirements.
Contributions made by the business owner and plan earnings are not taxed until withdrawal, deferring the tax obligation on income until years down the road.
Learn more about the retirement savings account tax advantages. If you miss the deadline to set up or contribute to the plan of your choice, consider contributing to a traditional or Roth IRA for 2019 and setting up your plan in 2020.
2 – Business Entity Consideration
If you’re a sole proprietor, you may want to consider choosing a different business entity. Read up on choosing a business entity and find the structure that best works for your business. Each type of entity has different requirements for set-up and switching as well as forms and other paperwork for the IRS and for your state.
3 – Take Advantage of Section 179 Expensing
All businesses need equipment, be it technology, office furniture, and supplies, machinery, or other tangible items. A small business owner could purchase any number of these items throughout the year and will do so on a repeated basis.
Ordinarily, the cost of business equipment is capitalized and depreciated over a set number of years. Congress updated Section 179 in 1958 to allow eligible businesses to write off the costs in the year the qualifying items are purchased and placed in service. It has been increased over the years and tax reform greatly expanded it.
Alternatively, businesses can take a 100% bonus depreciation deduction on certain kinds of equipment bought and placed in service after Sept. 27, 2017 (up from 50%). That deduction applies to purchases of specific used as well as new equipment.
If you’d like to take advantage of the Section 179 or bonus depreciation write-offs, you need to purchase the equipment and place it in service before the end of the year. In some cases, it is more to your advantage to forego immediate write-off and instead depreciate the property over several years.
4 – Defer Income or Accelerate Expenses
Small business owners might be able to defer income to the next year or pay certain expenses early. For example, a cash-based business could delay year-end billing until after the end of the year or pay December bills not due until January by December 31. Keep in mind that tax planning must be considered over several years, so use caution in deferring income or accelerating expenses if doing so will put you at a disadvantage in future years.
5 – Strive to Keep Good Records
Any of these strategies requires solid tax record-keeping to make informed and accurate tax decisions. Get your tax and financial records in order before starting a new year. This is also helpful because you can start the next year off by being able to make smarter financial management decisions for a business.
6 – Get Educated on Tax Filing Changes
Each year, the IRS updates forms, instructions, and guidance. Changes are still being made to accommodate the 2017 Tax Cuts and Jobs Act. In 2019 the IRS has again redesigned Form 1040, which will have 3 schedules instead of 6. However, you’ll continue to report income from your sole proprietorship on Schedule C and Schedule 1. A new form is available (Form 8995 or 8995-A) to claim the Qualified Business Income Deduction. And if you were involved in any virtual currency transactions, you’ll be required to check a disclosure box on Schedule 1.
With all of the small business end of year tax tips, it’s more important than ever to consult a trusted tax advisor to maximize money kept in your pocket. Small business owners have a wide range of opportunities to make the most of their hard work. But with that comes finding someone who can guide you to make the best decisions for you and your business.
The runway for tax review and strategies to maximize the 2019 year is shortening but it’s not too late to implement strategies for future years. For tax planning help, consult a trusted tax advisor. Get matched with a tax advisor nearest you now!