Although you may not be thinking about tax-season preparation just yet, fall is the perfect opportunity to get ahead and organized. Small-business owners and entrepreneurs typically rush to pull together reports at the end of the year, which can become stressful and hectic. All business owners — including doctors and dentists managing their own practices, and real-estate agents running their own agencies — can improve their tax position with the right prep work. These are simple, yet effective, strategies that owners and entrepreneurs can take to reduce taxes before the end of the year.
Start with the 12x12 system
For 12 consecutive days, one day at a time, go over each month of the year to review bank accounts, gather receipts, and find canceled checks — if you don’t currently have financial statements — and go through checking accounts to find tax-deductible items. Then, place each month’s records in an organized folder for either your tax preparer or accountant. This approach presents 12 opportunities to analyze your tax situation and make adjustments prior to the end of the year, and gives you an idea of your tax liability.
Find easy steps to reduce liability
Now that you have a benchmark number, face it and find ways to reduce it. Put your fixed expenses on paper and seek out opportunities to have a better tax position. Determine the items that can become tax benefits and those that can be written off — but don’t write-off items just for the sake of it. Do so for the beneficial reasons to get money back in your pocket, and then determine where to invest it, such as contributing to a retirement account.
Give the gift of marketing
The holidays are approaching, which means gift-giving is under way. As you may or may not know, gifting clients has a write-off limit of $25 per person, and many business owners often exceed the limit. However, if business owners include marketing materials and business information with their gift, the items are considered a marketing ploy rather than a gift and do not have a write-off limit. These items can therefore be written off for the entire expense.
Track all charitable donations
Many business owners do not take advantage of the ability to set up their own charitable organization. At the end of the year, if you determine that your taxes are very high, you can donate to your own organization and receive a tax deduction. This not only creates the opportunity to lower your tax bill, but it also positions the company favorably, as people like to conduct business with companies that are serving the community.
Open separate companies
Business owners can open a separate company for sellable content or products and have two entities. This provides a multitude of benefits, but from a tax perspective, you have the option to invoice one entity, based on services rendered, ultimately lowering your tax bill.
As a business owner and entrepreneur, looking to do what is best for your business, taking the time and effort to prepare your taxes will help you capitalize on opportunities than can lower your tax bill. Even though it is not tax season yet, a lack of planning can put your tax position at a disadvantage. Taking these strategies into consideration and being proactive about your taxes is the key to finding ways to lower your tax bill before the end of the year and fuel success for the year to come.
Karla Dennis is an expert tax and business strategist. She is founder and CEO of a tax and accounting firm called Cohesive, based in Southern California, and is licensed to represent taxpayers in all 50 states. She is also an accomplished speaker and the author of two tax strategy books, called “Against the Odds” and “Tax Storm.”