It’s Always a Good TIme for Tax Saving Strategies
Tax season may be in the rear view mirror for now but next year’s tax season will be in full swing before you know it. As an entrepreneur or small business owner, you owe it to yourself and your business to take advantage of all legal tax breaks. Now is not too soon to consider how to reduce next year’s tax bite from Uncle Sam.
Separate Meals for Convenience from Meals for Entertainment
Ordinarily, meals are considered an entertainment-related expense, and deductions are generally limited to 50 percent of eligible expense. However, meals for convenience are not subject to this 50 percent limitation – and the chances are good that your company may qualify for this deduction. For example, if your crew works overtime on a project and you provide food at the job site, that would most likely qualify under the meals for convenience provision, along with a deduction for 100% of your costs.
Advance or Delay Big-Ticket Expenses
The end of the year is a good time to assess the overall performance of your business. If you’ve had a big year and raked in big profits, you might want to consider making advance payments for bills that you would normally pay in January. You should also consider making those big-ticket purchases before the end of the year as well. On the other hand, if you anticipate making much larger profits in the coming year, put off some of those big-ticket purchases. Either strategy will help reduce your federal (and state) tax obligations.
Document Bad Debts
Of course it’s always preferable to be paid for the work you’ve done. And in many cases, it’s worthwhile to take legal measures to pursue deadbeat customers or clients. However, in some cases it’s better to cut your losses. If you find yourself in this position, the IRS feels your pain – at least to some extent. You can write off bad debts on your federal income tax return. But to do so, you must document those debts, along with your good faith efforts to obtain payment. The end of the year is a good time to determine whether your records are in order – and to obtain any missing documentation.
Beef Up Fringe Benefits for Your Employees (or Yourself)
You value your staff and you want to reward them for the work they do. Assuming that you already pay your workers salaries in line with other companies in the area, why not beef up your employee benefit package. Many desirable benefits, including health insurance, can be deducted as business expenses. In addition, if you have fewer than 25 full-time equivalent employees with an average annual wage of less than $50,000 (adjusted annually for inflation beginning in 2014) and your employer-provided health care plan covers at least 50 percent of the premiums – your business also qualifies for the Small Business Health Care Credit.
If you operate as a sole practitioner, consider beefing up your contributions to a traditional individual retirement account, if you have one. If you don’t have one – consider establishing one if you’re eligible for tax-deferred contributions. You can make eligible tax-deferred contributions to a traditional IRA until next year’s filing deadline date (generally April 15) and deduct them on this year’s federal income tax return.
Attend an Industry-Related Conference
Conferences represent an excellent opportunity to make contacts within the industry, learn new techniques and check out the newest innovations. They also represent a source of potentially significant tax breaks. And if an end-of-year conference is held in a location for great snowmobiling and skiing or features sunshine and sandy beaches, so much the better.
First , the cost of the conference (along with membership fees for the industry association hosting the conference) are tax deductible as a business related expense – as long as the expenses are not what the IRS considers “lavish”. Eligible travel to and from the conferences, and accommodation expenses during the conference are fully deductible, while eligible meals are 50% deductible. Just be sure to keep meticulous records. And if you decide to extend your stay for a few extra days either before or after the conference, remember that lodging, meals and other expenses for those days are NOT tax deductible.
Consider Calling in the Pros
If you’re unsure about whether you’re eligible for a particular tax break, don’t guess. Obtain the services of a certified public accountant or tax attorney to be sure. In fact, it’s not a bad idea to consult with a tax pro on general principle. He or she may reveal tax breaks that you would never have discovered on your own. The money you save may well exceed the amount that you spent for getting that advice.
Disclaimer: This article describes general strategies that can be used to reduce federal income tax obligation. It is not intended to represent legal or financial advice. Please consult with a tax professional in your area with specific questions concerning your company’s tax situation.
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