As a business owner, you work hard to keep revenue flowing into your business. To keep growing your company and benefiting more customers or clients, it’s essential to keep as much of that money as possible.
Tax burdens, though, can make optimizing your company’s profits difficult. Many business owners wince when they think of filing their business income statements because they know they’re losing a significant portion of their profits to taxes.
Fortunately, there are several strategies you can start using today — and keep using all year long — to minimize your tax obligations this year. Here are a few.
Net Operating Loss
In some cases, a business may have an expense deduction higher than the company’s income. This scenario, known as a net operating loss (NOL), can create tax benefits in the future, as long as you properly document and claim the deduction.
Companies that are in startup or growth phases, as well as those impacted by the COVID-19 pandemic, are commonly eligible for the NOL deduction. Also, if your business derives income from multiple sources, you can use this provision to offset income gained from those sources.
Defer December income by Billing Clients on December 31st
If you are a service provider or other business owner who routinely bills clients, a simple billing change could help you avoid significant tax obligations.
For example, suppose you are a graphic designer who invoices clients weekly. In December, you could opt to bill your clients for December on the 31st. That means they will not pay until January 1st, which falls in the following taxable year.
Pay Expenses in Advance
The IRS allows you to prepay up to 12 months of expenses without question or scrutiny. For example, suppose you lease equipment for $3,000 per month. You could submit a $36,000 payment on December 31st and claim the entire amount as a deduction.
This also represents a win for the lessor, who will record the payment as income in January — avoiding taxation on this income until the following year.
Make Important Purchases on December 31st
If you’ve been looking at new computers, equipment, training, or anything else to support and grow your business, complete these purchases by the end of the year. Doing so will give you the benefit of deducting the cost of these items during the current year.
Want to know more about how to minimize your business taxes? Get in touch with one of our experienced professionals at Quantum Strategies Wealth Advisory. We are here to serve you.
Advisory services are offered through Quantum Strategies, LLC dba Quantum Strategies, a Registered Investment Advisor in the State of Pennsylvania. Insurance products and services are offered through William Rizzo, Sole Proprietor.