Do you remember what Donald Trump said when asked how he was able to pay no federal taxes for many years? His response was “It’s called depreciation.”
Well, if billionaires can do it, so can you.
November is a good time to consider a few ways that you can reduce your taxable bottom line. After all, wouldn’t you like to keep more of that hard earned profit in your pocket, rather than handing it over to Uncle Sam? The same strategies apply if you want to increase your loss if this has not been a good year for your business. By increasing your business loss, you can offset taxes on any other sources of income that you have.
First, lets look at depreciation and retirement-plan strategies for reducing taxes this year.
If you buy new or used equipment or any depreciable non-real asset for your company and place it in service before the end of the year, you could be entitled to a huge federal tax deduction. In addition, businesses can take a bonus depreciation deduction on certain kinds of equipment.
Setting up a retirement plan before the end of the year could be a good idea also. Small business owners have several options for employer-sponsored retirement savings plans, including SIMPLE IRA, SEP IRA, 401(k), and profit-sharing plans. With any plan, contributions you make for yourself and your employees may be tax-deductible. Small businesses may also get a tax credit to help defray the cost of starting certain retirement plans.
With both the depreciation and retirement-contribution strategies, your accountant can guide you through the fine print of the new tax laws so you can use them to your advantage. Also, have your accountant analyze the tax treatment of your business structure. Many small business owners can deduct 20 percent of qualified business income in calculating their federal taxes.
If you use the cash method of accounting, as most small business do, you should consider another simple strategy. Pay as many bills as you can before December 31, as well as a few regular monthly expenses in advance. In addition, you can delay invoicing some of your reliable customers in order to defer income until next year.
It is also a good idea to reexamine past tax returns, perhaps even having a second set of professional eyes look at them. This can reveal missed deductions or other expenses that might not have been captured. You have three years to file amended tax returns. There is nothing more fun than notifying the IRS that they owe you money that you are legitimately entitled to from past years.
Far too many businesses hand over more money than they should to the IRS because they don’t get professional help with the latest tax laws.
As a small business owner, you owe it to yourself to be proactive.
An hour-long consult with your accountant during November or December could more than pay for itself in tax savings this year.