Small business owners, like most American’s are looking for ways to reduce their tax liability. Often small business owners are missing out on potential tax savings and ultimately paying more in tax than they have to. With potential tax changes on the horizon, 2021 is a great time to review your company’s situation and see where you can take advantage of tax saving opportunities.
Setup or Add to a Retirement Plan
This is by far the easiest tax deduction to take advantage of. You are deferring income to take at a later date and hopefully at a lower tax rate. Don’t forget the power of compounding. As this money is invested and growing over-time your initial deferral has the opportunity to become a much larger sum when you decide to withdraw your funds in retirement.
Deductions for Equipment
Section 179 is a fantastic way for business owners to receive a current year tax deduction for the complete purchase price of your equipment, up to $1,050,000* in 2021. Compared to deducting equipment with a traditional depreciation schedule over years, this allows you to utilize the full deduction when you purchase it.
Write off Bad Debts
Take a look at your accounts receivable. Are there any customer debts you will not be able to collect on? Maybe it is time to write off the debt at the end of the year. This will reduce your accounts receivable on your balance sheet and also be added as an expense on your income statement.
Business owners must separate out personal from business expenses. This is key to making sure you are getting the maximum deduction for business expenses. At the end of each month, you should reconcile expenses and make sure everything is included. Check your receipts! Having a business expense and forgetting to add it can become very costly.
Qualified Business Income Tax Deduction.
This deduction will only apply to certain business owners and most likely will be going away when the Tax Cuts and Job Act sunsets in 2025. Now, I will not get into the full math here but be sure to reach out to your tax advisor and make sure you are taking advantage of this if you qualify. Essentially the way it works is a 20% deduction given to business owners that own their business through a passthrough entity such as an S-Corp or LLC. However, this does not apply to married business owners with taxable income over $329,800 in 2021 or non-married business owners earning over $164,900.
The five tax savings ideas listed above are very simple and effective ways to reduce the amount you as a business owner pay in taxes each year. I highly recommend reaching out to your tax advisor and seeing if anything listed above applies to you and how you can best implement the deduction.
The information in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. Integrated Financial Partners does not provide legal/tax/mortgage advice or services. Please consult your legal/tax advisor regarding your specific situation.