Taxes for small businesses can be confusing. Several questions are there roams around the mind. Confusion is not an unnatural thing. Few Questions comes to the mind such as:
- How much do I pay?
- Why do I have to pay this amount?
- How can I reduce taxable income?
However, it is better to do year-end tax planning to avoid these confusions. Preparing everything from the starting helps to win the game at the end. There are 70000 pages in US tax code, and it is impossible for a business owner to go through all these.
The current post includes a small business year-end checklist that can help you save tax money.
Adjusted Gross Income (AGI)
Many tax breaks, limitations, and additional taxes tee off of adjusted gross income (AGI) or modified adjusted gross income (MAGI), which for most filers is the same as AGI. One can enjoy a 0.9% additional Medicare tax unless the AGI exceeds $200,000. The limit exceeds $50000 more in case of being married and filing a return together.
Review the Tax Withholding
In the case of tax withholding, one may suffer issues. Therefore, while you are doing year-end tax planning, you must review it. The tax reforms can change your tax withholdings. It’s not too late to make an impact this year, and you can also make changes for 2020.
Review the Business Structure
The tax amount largely depends on business entity formation. If you have 2019 year-end planning ideas in mind, then you must think about the entity formation as well. It will help you save a good amount of tax.
A big change in the tax law in this year decides how business entities are taxed. Corporate tax rates were cut, and pass-through entities will get a break. Structure your business now to avoid a good amount of money. Remember, in business, a single penny also counts.
Use the Accountable Plan
If you pay for the travel, entertainment, tools, or other costs to your employees, then it is recommended that you must continue it further. However, use a plan that is permitted by the IRS known as an Accountable Plan.
Using this plan, you can deduct the amount from the business, but these reimbursements will not be recorded as income to employees. It will save company employment taxes and lower taxable income overall.
Give your employees an accountable plan for reimbursements. It can help your employees save money, as well as help your business — it’s a win-win.
Plan Smart Tax Deductions
Several ways are there to save tax money. However, it depends on the company that will select the usual ways or will go for smart tax selection. While doing year-end planning, you must have to be strategic in your choice.
For example, one can deduct up to $1million for gaining machinery and equipment for the business. Those who are startups can ask their accountants to put the cost under the depreciation. Further, one can claim disaster losses happens like that. A business can also deduct the business insurance amount that they pay every year. IRS Form 1040 can help you determine the business insurance deduction.
Write off Bad Debts can save taxes
One can write off the bad debts prior to the year-end. In addition, you can use the uncollected debts for lowering your profits. During the year you have some accounts receivable which you face difficulty to collect.
During the year-end, if you find that a customer did not pay you for a long time, you can write off the balance amount from the total. You can add all the bad debts to avail a tax deduction. However, you must sit with your accountant before adding to the list.
Therefore, over here you have seen the ways year-end tax planning can save a good amount for your small business. However, it is always a good idea to hire a professional to maximize the benefits.