We may be facing the end of another tax season, but there are plenty of things that you can do right now to reduce your business income tax for next year. Even though the tax laws could change from one year to the next, these helpful tax strategies should still be effective for most small businesses.
Saving on your taxes can help your business significantly each year. You can help put that money back into your company’s budget and put it toward something that you may need such as equipment upgrades or office furniture.
Here are a few aggressive tax strategies that your company can use to help you save money on your taxes each year.
Use Tax Law Changes to Your Benefit instead of a Disadvantage
Does your small business operate as a sole proprietorship? Are you a limited liability company or a partnership with another business? Regardless of what type of business you own, your portion of the net income generated by the company will be shown on your Form 1040 and taxed at a personal rate. If the individual federal income tax rate is reduced, you will want to think strongly about planning for next year’s taxes and make plans for permanent tax benefits.
If the tax rate is reduced, the common strategy of deferring income into next year while rushing deductible expenses into the current year can help you create a noteworthy tax break.
Use Your Company’s Credit Cards to Your Advantage
Before the end of the year, make a charge on your business credit cards recurring expenses that you would normally pay off at the beginning of the calendar year. You can claim deductions even though the credit card bills will not be paid until next year.
This strategy may not work for everyone, for example, it doesn’t apply to store revolving charge accounts. Therefore, you can’t deduct the business expenses that are charged to a Home Depot or Officemax account until you have paid the bill.
Use a Check to Pay Your Monthly Business Expenses
One trick that you can try is to pay your expenses using a check in the mail. Place your bills in the mail a few days before the end of the year. The tax rules say that you can deduct these expenses in the year that you mail out the check, even if they won’t be cashed or deposited until the following year. For large expenses, send your checks by registered or certified mail, so that you can prove when they were mailed out.
Pre-pay Your Expenses for Next Year
Another tax strategy that many small businesses use is to prepay some of their expenses for the following year in December. This can be effective as long as the financial benefit from the prepayment doesn’t go beyond the earlier of either 12 months after the first date that your company retains the benefit or the end of the tax year following the year in which the payment was made.
An example of this would be, the rule allows you to claim your 2016 tax deductions for prepaid bills in the first three months of the following year. So, you could pay next year’s rent or payment for your small business loans for the first half of the next year.
Remember that it is a general rule for all cash-basis taxpayers that you don’t have to report your income until the year you receive cash or checks in hand or through the mail.
To take advantage of this simple tax rule, send out some of your invoices at the end of the year. That way, you won’t be paid until the early part of the following year, however, don’t try this i9f it raises the risk of you not receiving your payment from clients. While some of these tax strategies may not work for all small business owners, but they are good tips for every business manager to keep in mind.