Tax planning strategies are the process of looking at various tax options in order to determine when, whether, and how to conduct business and personal transactions to reduce or eliminate tax liability.
Many small business owners ignore tax planning. They don’t even think about their taxes until it’s time to meet with their accountants, but tax planning is an ongoing process and good tax advice is a valuable commodity. It is to your benefit to review your income and expenses monthly and meet with your CPA or tax advisor quarterly to analyze how you can take full advantage of the provisions, credits and deductions that are legally available to you.
Tax Planning Strategies
Countless tax planning strategies are available to small business owners. Some are aimed at the owner’s individual tax situation and some at the business itself. Regardless of how simple or how complex a tax strategy is, it will be based on structuring the strategy to accomplish one or more of these often overlapping goals:
- Reducing the amount of taxable income
- Lowering your tax rate
- Controlling the time when the tax must be paid
- Claiming any available tax credits
- Controlling the effects of the Alternative Minimum Tax
- Avoiding the most common tax planning mistakes
In order to plan effectively, you’ll need to estimate your personal and business income for the next few years. This is necessary because many tax planning strategies will save tax dollars at one income level, but will create a larger tax bill at other income levels. You will want to avoid having the “right” tax plan made “wrong” by erroneous income projections. Once you know what your approximate income will be, you can take the next step: estimating your tax bracket.
The effort to come up with crystal-ball estimates may be difficult and by its very nature will be inexact. On the other hand, you should already be projecting your sales revenues, income, and cash flow for general business planning purposes. The better your estimates are, the better the odds that your tax planning efforts will succeed.
Maximizing Business Entertainment Expenses
Entertainment expenses are legitimate deductions that can lower your tax bill and save you money, provided you follow certain guidelines.
In order to qualify as a deduction, business must be discussed before, during, or after the meal. Small, quiet restaurants are ideal locations for a business dinner. The IRS allows up to a 50 percent deduction on entertainment expenses, but you must keep good records and the business meal must be arranged with the purpose of conducting specific business. Bon appetite!
Important Business Automobile Deductions
If you use your car for business such as visiting clients or going to business meetings away from your regular workplace you may be able to take certain deductions for the cost of operating and maintaining your vehicle. You can deduct car expenses by taking either the standard mileage rate or using actual expenses.
The mileage reimbursement rates for 2016 are 54 cents per business mile (lower than it was last year). Don’t forget 19 cents for medical and moving miles as well as 19 cents for charitable miles.
Whichever method you decide to use to take the deduction, always be sure to keep accurate records such as a mileage log and receipts. If you’d like to chat about how to track your miles or any of these topics give me a call. While I don’t do taxes, I work with enough business owners that I can set you in a good direction. Happy driving!
Increase Your Bottom Line When You Work At Home
The home office offers so many tax advantages it becomes worth the additional tracking and recording needed to document it. Here are a few common tips for home office deductions that can make tax season significantly less traumatic for those of you with a home office.
Try prominently displaying your home phone number and address on business cards, have business guests sign a guest log book when they visit your office, deduct long-distance phone charges, keep a time and work activity log, and retain receipts and paid invoices. Keeping these receipts makes it so much easier to determine percentages of deductions later on in the year.
And don’t forget Section 179 expensing where you can deduct equipment, furniture and tools used in your home office. The rules and limits change each year so consult with your tax advisor. Equipment can be new or used and includes certain software. All home office depreciable equipment meets the qualification. Some deductions can be taken whether or not you qualify for the home office deduction itself. If you want to chat with someone knowledgeable before taking up your accountant’s time, give me a call.
So many tax strategies to consider! Want help strategizing? Call, click or contact me at 610-628-2055, Merra Lee.net and merralee.moffitt@lpl.com.