Filing your taxes is a necessary and unavoidable aspect of running any business. However, most business managers ignore the benefits of maximizing tax write-offs, and they can be categorized into deductions and credits. Tax credits repay a chunk of your unpaid taxes, while tax deductions decrease your taxable income. By maximizing credits and deductions, you can save money and invest in other business expenses. Here are six essential tips to ensure you get the best out of your tax season.
Irrespective of your age, you should understand the significance of having a retirement fund. This critical practice provides two benefits, maximizing your deductions and increasing your savings. A 401(k) is an employer-sponsored retirement plan that allows employees to make yearly contributions up to a specific limit. A replacement for a 401(k) is a Roth IRA. This unique individual retirement account is funded with post-tax income. A Roth IRA contribution isn’t eligible to be taken out from your taxes.
Charitable donations to worthy causes will give your business a good image and make you feel better about supporting a deserving cause. It will also help you as tax season approaches. Some charities provide you with a year-end statement if you are a regular donator; however, monitoring every charitable donation you make yourself is also a great idea. If you wish to reduce your AGI (adjusted gross income) via philanthropic contributions, ensure you catalog your deductions. Claiming standard deductions for charitable donations won’t impact your tax returns.
Taxes are subject to the calendar year, so any expenses deducted must have occurred within the applicative tax year. You cannot file taxes on the income you haven’t received, and you cannot preemptively deduct expenses you intend to pay in the coming year. However, this creates an opportunity for your business to defer its income to the following year. You can consider this strategy if your company’s income drastically fluctuates annually. This strategy only aids in reducing the tax payments for the current year.
It’s impossible to know all available tax deductions and credits because tax legislation varies at the state and federal levels. For example, many people don’t know how to avoid a penalty from moving their 401K to gold as a way to reinvest. Consider contacting a tax expert who can aid you in maximizing tax credits and deductions.
You might know the basics, but having a different perspective from an actual professional who has successfully carried out this process several times is always beneficial. If you reside in Sydney, Australia, hiring a Sydney-based tax agent like Pherrus will ensure your business taxes are filed correctly.
It’s easy to ignore every miscellaneous office expense required to run your business successfully. So, ensure you properly monitor office supplies, such as printer toner and stationery, and even utilities and rent if you work remotely. The specified details on your office expenses can be slightly complex, so reviewing with an expert before making any deductions while filing your taxes is essential.
There are numerous ways that businesses can lower their tax payments. However, maximizing every qualifying tax credit and deduction is the best way. It’s always important to save as many invoices and receipts as possible.