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Onvio "how to" videosYear-End Tax Checkup
When you close your business’s books for September, will you be handed an “October Surprise?” Will business profit good news also be tax liabilty bad news? October is the time of year when updated tax liability projections are made based on what has happened through the first three quarters and what the business owner projects for the last quarter. If additional estimated income tax payments are needed, they can be made on or before January 15, 2018.
While October surprises are an event most politicians want to avoid, as a business owner you would much rather have a surprise now than when you file your income tax return later. The last quarter of the calendar year is when you can prepare for year end and take steps to reduce your taxes.
Common steps include purchasing equipment that can be deducted in full on the tax return. For example, you are a farmer and that old Ford tractor should be replaced soon. If you need to reduce tax liability, you may choose to head to the dealer and trade the Ford in on a new New Holland tractor. It does not make a difference if you use cash or finance the tractor, you will likely be able to deduct the full cost of the tractor against your taxable income. This works for all types of businesses up to $500,000 of machinery and equipment purchases.
What if you don’t need new equipment, what else can you do to reduce taxes? Another common tactic, if you have the cash, is to establish one of the many types of retirement plans such as a SEP IRA or SIMPLE IRA and maximize your contributions to it. The contributions will be tax deductible within certain limits. A Health Savings Account (HSA) could also be established to pay for future health care costs. Check with your tax advisor before settling on a particular plan if one is not already in place.
Besides making sure you are deducting everything you are legally permitted to deduct against your income, you may also want to take a look at your business structure. While income taxes are always a concern, of equal concern is the amount of self-employment tax you will have to pay on sole proprietorship or partnership income. If your business is set up as a corporation, you will be an employee of the business earning wages. Any income from the business that flows to you as a shareholder will avoid the self-employment tax.
Call your tax advisor today for an appointment and discuss with them what is going on in your business and your life. Now is a much better time to have an in-depth conversation than during tax season when your accountant is pressed for time. You may be amazed on the steps you can take to improve your tax picture!