It's very difficult to manage taxes as a small business owner. The tax laws can make it complex to properly file your taxes each year. The difficulty makes it possible to miss out on several tax-saving strategies. These strategies can reduce your taxable income and increase the profit you get to keep. Continue reading for end-of-year planning tips for small business owners.
- Claim Bonus Depreciation
If you have any equipment such as computers, furniture, vehicles, or more, you can depreciate those items of it's useful life. The bonus depreciation gives you the ability to write off 100% of those costs on your 2021 income tax return. If you are looking into purchasing a new piece of equipment or upgrading existing equipment, think about doing it before the year ends. Be aware - not all assets qualify for bonus depreciation so be careful.
- Wait for Income, Bring on the Expenses
If you use the cash basis accounting method, this opens up many tax planning opportunities for you as a small business owner. With the cash basis method, you realize income when it is received and expenses when they are paid. To lower your taxable income, see if you could have a portion of your income pushed to next year. If you have any expenses pending for early next year, if you pay them before the end of the year you can claim the deduction.
- Create a Retirement Plan
Under the SECURE Act, small businesses can claim up to $5,000 per year for three years to assist in offsetting the costs of setting up workplace retirement plans. The costs covered include setting up the plan, managing the plan, and educating employees. To qualify, your small business must have 100 or fewer employees who received at least $5,000 in the prior year, at least one plan participant who is not highly compensated, and a list of employees who did not participate in a retirement plan that was previously offered by your business in the past 3 years.
- Donate to Charity
To benefit from a tax deduction from a charity contribution, you have to pick the standard deduction to deduct up to $300. This applies only to cash donations made to qualifying charities. Typically, charitable contributions are not deductible on small business tax returns unless it is a C corporation.
- Utilize a HSA
Health savings accounts allow people with high deductible health plans to save on out of pocket health related expenses in a tax-advantaged account. Contributions to an HSA are deductible; the money grows tax-free inside the account and withdrawals are tax-free as long as the expense is a qualified health care expense. For the 2021 tax year, you are allowed to contribute up to $3,600 for an individual high deductible health plan or up to $7,200 for family coverage. You can also still contribute to an HSA in 2022 with the deduction as long as the contribution occurs before April 15th, 2022.
Tax planning as a small business owner can be made easy with the right financial advisor. Our advisors here at Genesis Financial can help you simplify your taxes for you. Call us today to get started.