Proactive tax planning for small businesses allows business owners to effectively plan for the future while optimizing deductions and lowering the tax burden. Here are 5 things you can do now for 2015 tax planning. Of course it is recommended to discuss and evaluate all options with your accountant. If you do not have a small business accountant, it is wise to find one. An accountant is one of the most important investments you can make in your small business.
- Contribute to a Self-Employed Retirement Plan
Traditional retirement plans may not be the best option for small business owners. Distribution from Roth IRA’s and 401(k) plans may not be subject to regular income tax or the Medicare tax. All retirement plans have their benefits and their drawbacks. It is essential to get to the bottom of the option that is best for your long-term financial plans and tax strategy.
- Purchase a Heavy Duty Vehicle
Under Section 179 of the IRS code, small businesses can purchase a vehicle for business use (must be used over 50% for business) may write off up to $25,000 of the cost of a new or used heavy duty SUV, pickup or van. Depending on Congressional action, additional write-offs may be available. The key here is “heavy duty.” There is a restriction on the vehicle’s gross weight. To maximize your write-off, speak with your accountant about the vehicle’s “must have” requirements to qualify. Other deductions for lighter weight vehicles may be available.
- Evaluate Benefits/Drawbacks of a “Pass-Through Entity”
If your small business is a sole proprietorship, S corporation, limited liability company or a partnership, you need to have your accountant evaluate your current designation, to ensure it is providing you with the best tax advantages and legal protection. Pass-through entities are typically used to reduce the effects of double taxation for some small businesses.
- Consider Deferring Income and Accelerating Deductions
Depending on the state of your business, if you expect to be in the same or lower tax bracket next year, deferring income until the following year but taking deductions this year, may help to offset your tax burden. However, if you expect to be in a significantly higher tax bracket the following year, accelerate your income into this year and postpone deductible expenditures until next year. Again, this is something that needs to be carefully analyzed with your accountant to determine the most advantageous choice for you.
- Routinely Evaluate Financial Performance
The best way to prepare for the natural ups and downs in the business world while preparing for taxes is to routinely meet with your accountant. Many business owners make the mistake of only meeting with their accountant during tax season. This is a missed opportunity for business growth and wealth building. Throughout the year, you can meet, and evaluate revenue, expenses and update long-term financial goals. In the event of a major change, including the addition of a new partner, the loss of a partner, a significant change of income, a divorce or a dramatic change in financial goals it is essential to meet with your accountant. These changes can radically impact your tax burden; it is best to stay informed and make necessary changes as you move through the year. As with most things in business, it is better to be proactive rather than reactive.
