Tax time isn’t until April the 15th 2012, but you can begin planning for that date right now. There’s only a few days left to take advantage of these end of the year tax savings. So let’s get right to these tax saving tips for business owners.
If you work as an independent contractor / freelancer and bill people for your services, you can choose to send out invoices and get paid after the new year. Otherwise, if you get paid by the end of the year, it’s considered income in 2011 and you’ll have to pay taxes on that income in just a few months. What matters, as far as the tax man goes, is when you get paid, rather than when the work was actually done.
If you’re a sole proprietor and pay your taxes four times a year, you know there are tax payments due in January, April, June and September. But did you know that if you make your January payment in December you can deduct it in this year’s taxes? Doing it this way would leave you with more money this year, but less money the next.
By far the biggest tax deduction for small business owners are business expenses. Let’s say this year you have earned $250,000 but have spent $175,000. This leaves you with an income of $75,000. You will pay taxes on that amount. Let’s say you have made good money this year and you don’t expect to make as much next year. If that’s the case, you should try and make a lot of last minute business expenses before the year is over in order to decrease your tax liability. If you spend an extra $25,000 to finish off the month, you will now earn the same $250,000 but would have spent $200,000 total, leaving you with an income of $50,000.
Don’t overspend foolishly though and only make business expenses you were going to make anyway. If you do advertising, for example, you can ask to prepay for the next several months. Also be aware of some of the free accounting software on the market that will help you capture and categorize your company business expenses.
A good way to lower your tax burden late in the year is to give money to charity. Let’s say you have an extra $2,000. Do you want to keep it and give the IRS $700, leaving you with $1,300? Or would you rather give $2,000 to charity and lower your taxes by $700?