Tax Preparation & Planning: 7 Valuable Insights for 2020
Tax planning is imperative for minimizing fees and expenses. There are over 30 million small businesses in the United States. Of all the hassles that confront small business, none are as feared as taxes. Having a winning 2020 tax strategy is essential to being viable as a business. On average, small business owners pay 19.8% taxes. The average small business gives up almost one-fifth of their profits to taxes.
There are a lot of tax strategies to help address this loss, but having the right one for your business can mean the difference between making it and not.
The important thing about having a tax plan is making sure it’s tailor-made to fit your business. A tax strategy should address your comprehensive issues. How much do you pay in taxes? How can you get more deductions? Could we change a process in order to qualify for more substantial deductions? Here are seven valuable insights to help shape and adjust your tax strategy for 2020:
1. Don’t Ignore Taxes
The most important fundamental to having a winning tax strategy is to not ignore your taxes. This includes trusting your accountant to do all the work for you. If you’re the owner of a business, you should research and understand the tax laws that affect your business. Tax laws are not set in stone, and they do change. Don’t be caught off guard by these changes, stay up to date on local, state, and federal tax laws.
It’s important that you understand how these changes will impact your day to day operation.
2. Take Command Of Your Taxes
One of the best things a small business owner can do is to become involved in tax preparation. Don’t trust others to handle things in your best interest; make sure you check on everything. Provide excellent leadership to the financial side of your business. One significant area of leadership is empowering your accountant to help build your tax strategy. They aren’t just plugging in numbers.
Accountants have valuable knowledge that may be leveraged for you. Make sure your payroll and human resources are also staying up to date and aware.
3. Reimburse Correctly And Accurately
If your business requires that you reimburse employees for any expense, make sure it’s a template the IRS accepts. Doing it right means deducting the expense, but you don’t report the reimbursement as taxable income for the employee. Reimbursing this way as part of a tax strategy will help you and your employees. If you report the reimbursement as income, both of you will have to pay taxes on it.
Finding win-win solutions like this can save your business a tremendous amount of money over the long haul.
4. Understand The Depreciation Of Equipment
It can be tempting to claim everything possible each year. That’s a good idea in most situations. When it comes to equipment for your business, you may want to consider carefully whether it’s a good idea. In the current tax law, you can deduct up to $1 million in equipment upfront. If you’re anticipating a significant growth in profits over the next few years, consider waiting on that deduction.
While tax planning, speak to your accountant about spreading out that write off over a few years by claiming depreciation on the equipment. As your taxable income goes up, so will the money you save on the write-off. For instance, if you’re paying 20% taxes, a write-off of $10,000 will save you $2,000 in taxes. If your profit goes up and you land in the higher bracket of 35%, you’ll save more on the same $10,000 write-off.
5. Always Write Off Travel Mileage
If your business requires you or others to travel, make sure you’re recording the travel distance and time accurately in your tax strategy. According to the IRS, you can write off 58 cents per mile. This could help alleviate a considerable amount of your tax burden. There are other tax write-offs that need to be considered when travel is concerned. These include reimbursement for food and lodging.
Even if you’re the one going on the trips, you can still write off these expenses.
6. Use Fringe Benefits Instead Of Direct Payroll
Anytime you distribute payroll, bonuses, or other forms of monetary payment, you have to pay taxes. Paystubs record all benefits paid like insurance and retirement. In many cases, these types of benefits do not count as taxable payroll. This is not to say that you shouldn’t increase the pay your employees receive. Instead of doing it all as monetary remuneration, consider these other avenues.
Giving a small raise in dollars and a big chunk towards retirement, insurance, or a healthcare savings plan could better benefit both your employees and your business.
7. A Small Business Owner's Income and Taxes
If you pay yourself from your business profits, you have to pay taxes on it. You can lower this tax burden by rewarding yourself in other ways. Low-interest loans from your business are one possibility, and so are bonuses in retirement plans. Managing what you pay in taxes will help your business out as well. Your business can’t survive if you aren’t making enough money.
Good tax strategies that are effective will have to consider your income and your business income as equally important.
Business Expenses Come in All Forms
Careful tracking of expenditures and reimbursements is a cornerstone of good tax strategies. Being informed and doing your research is the only way to make sure you don’t miss anything. If you have any questions, you should immediately ask your accountant. It’s their job to help you understand taxes. Using winning tax strategies can be the difference between a business that makes it and one that fails.
Don’t risk your future and the future of your employees. Use all the resources at your disposal to deal with taxes legally and fairly. Need to keep track of salary information, overtime and more? Just select a template of your choice and begin the process!