2017 is only in its third month, but that does not mean business owners should get complacent about evaluating their organization and find ways to save on taxes. Luckily, there are many small changes an organization can implement to help lessen the burden of taxes while gaining overall efficiency.
While it may seem daunting, it never hurts to get ahead of taxes and start applying some simple changes to ensure that your organization is using its revenue as wisely as possible, especially when tax season comes around. Here are 7 tips that should be considered when thinking about tax-saving measures.
While it may seem tempting, and easier to mix business and personal finances, you must resist the urge. While it may reap benefits in the short-term, it will inevitably cause headaches and stress in the long-term. Many small business owner make the common mistake of mixing business and personal funds, especially when the business is young.
However, it is extremely important to maintain separate bank and credit card accounts for your business. Not only will it make expenses and revenue tracking easier, but will also make tax season more efficient. Instead of having to manage books and get organized when filing taxes, keep business and personal finances separate.
This will also be helpful in cases where an IRS audit is likely, during which time you will need to produce evidence of documents that support legitimate business expenses.
A common tax myth that continues to prevail is that taking the home office deduction flags you with the IRS. I have discussed this myth in detail in a previous blog post, which you can find here.
Suffice it to say, a business expense is considered tax deductible if it is both ordinary and necessary. According to the IRS, an ordinary expense is classified as one that is one that is common and accepted in your trade or business. A necessary expense is classified as one that is helpful and appropriate for your trade or business.
This deduction offers two methods if chosen, which are as follows:
As an example, if you drove your car a total of 15,000 miles, with 6,000 of those miles being for business (based on your mileage tracker) then you would divide 6000/15000 which equals 40%. Therefore, 40% of your total car expenses would be a deduction.
This is an extremely important point to note, as business structures greatly impact taxes. How a business is structured will have a greatly affect the taxes paid. This needs to be discussed in a detailed conversation with your accountant in order to maximize your tax savings, as they can provide advice on what is the best course of action
You can read about that in further detail in our free eBook, 7 Tax Myths You Should Leave Behind.
It might sound redundant or silly, but this is one of the key ways to save taxes that many overlook. Always do your best to file tax returns on time, even if there are other priorities on the table. Failing to file tax returns in a timely manner will result in paying taxes that have interest and penalties tacked on to it - not worth the ensuing headache.
The follow penalties may be incurred for failing to file on time:
This deduction allows businesses to recover the full cost of equipment and property of up to $500,000 that has been purchased for the business in the same year. This is a far better alternative to recovering the cost through depreciation deadlines over a period of 5 or 10 years.
A retirement plan needs to be in place, as it will provide a multitude of benefits for you, your business along with your employees. Some of these benefits include:
While it may seem initially overwhelming, getting ahead of tax season will always benefit organizations in a variety of ways. Using these tips as a benchmark, work with your accountant to see what solutions will work best for your business.
For more information, and to learn more on how you can save on taxes, please contact us.