6 timely (and timeless) small business tax tips for year-end and beyond

For small business owners, taxes should be on your mind year-round. But when the year draws to a close, there could be additional small business tax tips to take advantage of and reduce your business’ taxable income.

Luckily, there are a number of year-end tax-saving strategies, but also ones you can make throughout the year.

Here are some timely and timeless small business tax strategies:

1 – Invest in a small business retirement account

Small business owners have several options for setting up and contributing to retirement savings plans for their business. They include:

• SIMPLE IRAs
• SEP IRAs
• 401(k) and other qualified plans

Each type of plan differs in the due date for setting up and contributing to the plan, contribution maximums, and other requirements.

Contributions made by the business owner and plan earnings are not taxed until withdrawal, deferring the tax obligation on income until years down the road. 

Learn more about the tax advantages of a retirement savings account. 

2 – Choose the right business entity

If you’re a sole proprietor, you may want to consider choosing a different business entity. Read up on choosing a business entity and find the structure that best works for your business. Each type of entity has different requirements for set-up and switching as well as forms and other paperwork for the IRS and for your state.

3 – Take advantage of expensing equipment

All businesses need equipment – be it technology, office furniture, supplies, machinery, or other tangible items. A small business owner could purchase any number of these items throughout the year and will do so on a repeated basis.

Ordinarily, the cost of business equipment is capitalized and depreciated over a set number of years. Congress updated Section 179 to allow eligible businesses to write off the costs in the year the qualifying items are purchased and placed in service. Read our article about Section 179 deductions to learn more about specific guidelines for vehicles. It has been increased over the years and tax reform greatly expanded it.

Alternatively, businesses can take a 100% bonus depreciation deduction on certain kinds of equipment bought. The deduction applies to purchases of specific used as well as new equipment.

In some cases, it’s more to your advantage to forego immediate write-off and instead depreciate the property over several years.

4 – Defer income or accelerate expenses

Small business owners might be able to defer income to the next year or pay certain expenses early.

For example, a cash-based business could delay year-end billing until after the end of the year or pay December bills not due until January by December 31. Keep in mind that tax planning must be considered over several years, so use caution in deferring income or accelerating expenses if doing so will put you at a disadvantage in future years.

5 – Strive to keep good records

Any of these tax tips require solid bookkeeping to make informed and accurate tax decisions. Get your tax and financial records in order before starting a new year. This is also helpful because you can start the next year off by being able to make smarter financial management decisions for your business. 

Remember, you can get support in this area so you don’t miss an expense that could turn into a small business or self-employed tax deduction.

If mileage is something you need to keep track of, think beyond pen and paper. Instead, make mileage tracking easy with an app-based tracker like the one from Everlance.

6 – Get educated on tax filing changes

Each year, the IRS updates forms, instructions, and guidance. Not being up-to-speed on what’s changed may mean missing out on a way to minimize your tax liability. For example, there have been many recent changes due to the coronavirus pandemic.

Where to go for more small business end of year tax tips

Business owners like you have a wide range of year-end tax saving strategies to help make the most of your hard work.

If you need help organizing your receipts, expenses, and other documents, use our Year-End Tax Filing Readiness service. Our tax pros can get your paperwork in order, helping you avoid missed deductions for just $50 per hour.