The 2017 Tax Cuts and Jobs Act, effective for 2018 taxes created several features that can lower your small business tax bill.
You may be able to take advantage of a 20% tax deduction on your business net income if your business is a pass-through entity (basically, not a corporation). This deduction is in addition to ordinary business expense deductions. You qualify if your taxable income is below $157,500 if you're single or $315,000 if you're married and file jointly. There are several restrictions and limitations, so check with your tax preparer about your eligibility.
Setting up and funding a retirement plan for yourself and employees can save you money on taxes, and it's easier than you might think. Just make sure it's a qualified plan (qualified by the IRS, that is), so you can take advantage of those tax savings.
Melissa Phipps, retirement plan expert, has some tips for how to fund a Self-employed Retirement Plan (SEP).
Tax credits are the federal government's way of encouraging businesses and individuals to do things (or not do things). This article lists lots of tax credits your business can use to reduce income.
For example, you can take tax credits for hiring employees, doing research, "going green," providing access to disabled employees and the public, and providing health coverage for employees.
The newest is a family leave tax credit that allows small businesses a credit on amounts paid to provide family leave benefits to employees. This credit is only available through 2019, so check on it soon.
Businesses have the opportunity each year to take write-offs on purchases of business equipment and vehicles. These write-offs (called depreciation) can be taken more quickly. Sometimes you can take the entire cost in the first year you own and use the equipment. .
The two most common types of accelerated depreciation are Section 179 deductions and bonus depreciation.
Section 179 deductions allow you to immediately take costs of buying assets
And bonus depreciation is an extra benefit for buying new assets.
Both depreciation programs have been increased, so it's a good time to talk to your tax preparer if you have purchased major assets.
You may be able to deduct part of the cost of giving gifts to employees, customers, and vendors. In addition, you may deduct awards and bonuses to employees.
All of these deductions have restrictions and limits so read carefully and consult your tax advisor before making any decisions. You also need to know the tax implications of these benefits to employees.
Bonuses to business owners may also be deductible. Check with your tax professional.
Timing income is a method of moving income from one year to another. You first have to determine which year will have the highest taxes, because of two factors (1) your business income, (2) business tax rates. So get out your crystal ball and talk to your tax advisor about this one.
Timing expenses works the same way as timing income, only in reverse. Put the expenses in the year of higher taxes, to reduce your net income in that year.
Before the end of each year, review your current expenses and, if you think you can benefit from reduced income, prepay some of those amounts.
You can also increase expenses (and decrease income) by stocking up on supplies.
07Write Off Bad Debts to Lower Income
If your business operates on the accrual accounting method,, the end of the year is the time to review your customer accounts. First, find those customers who aren't going to pay. You can write off the amounts they owe as "bad debts," and deduct these amounts from your business income to save on taxes.
Before making any decisions that can affect your business tax return or spending money to save on taxes, consult a tax professional. Make sure you select someone who can help you all year, not just at tax time. And consider getting a tax preparer who can represent you before the IRS, in case you get audited. A CPA or Enrolled Agent is your best bet.
9 Ways to Save on Business Taxes
Tax Deductions and Credits You Can Use to Reduce Taxes
Want to save money on your business tax bill? While I can't guarantee you a refund, I can tell you that these are the top tips across the board. Some - like timing income and expenses - must be done before the end of the year. But others, like funding a retirement plan, can be done any time before you file your tax return.
Disclaimer: These tips are not intended to be tax advice, but only to give you some tax-saving ideas to discuss with your tax professional. Every business is unique, and tax laws change frequently.