Do you own a small business? Do you expect a big tax bill when you file next year? The good news is that you still have time to do something about it. One of the great things about being a business owner is that you have a wide range of flexibility when it comes to tax planning. There are a number of actions you can take to not only improve your business, but also reduce your tax bill. Here are three tax strategies commonly used by business owners:
Give bonuses. Year-end bonuses weren't just created out of generosity and goodwill. They actually serve an important financial purpose. They can be deducted as wages at tax time. If your team has been working hard all year, what better way to show your appreciation than with a surprise year-end bonus? They'll likely repay you with loyalty and continued hard work in the future. Many business owners do this because they'd rather invest their cash in their employees than in a tax bill.
Invest in new software. Most business owners know that they can write-off the purchase of equipment or property. However, many don't know that the same tax law that allows those write-offs also applies to software purchases. If your company's software is a little out-of-date and you've been considering an upgrade, the end of the year could be the perfect time to go through with it. You can usually deduct the expense as long as the software is installed before the end of the year.
Delay revenue. Do you have invoices that you should send out before the end of the year? If you have the cash flow to support it, consider holding off on sending those invoices. By delaying them, you'll also be delaying the revenue until after the first of the year. This may not cut down on taxes that you already owe, but it will slow the accumulation of new taxes.
Be careful, though. Your customers may wish to pay their invoices before the end of the year for the very same reason that you want to delay them. They can deduct the expenses by paying the bill by the end of the year. You may want to check with your customers before your implement this strategy. Also, be very sure that your cash flow can support a delay in invoice payments.
Talk to your accountants before you make any big decisions. They can advise you of whether these strategies, and others, may work for you.