Now is the time to plan how you'll reduce your company's taxable income before 2021.
The pandemic is a tempting distraction from year-end business tax planning, with its remote work, reduced employee numbers and market changes. But for small and medium-sized businesses especially, it's important to figure out ways to reduce taxable income.
And the time to do that is now.
Waiting until the very end of the year won't work. Take advantage of strategy shifts and new deductions over the coming weeks. The time is right to call your accountant to set up a time to talk over the best moves for your business.
Depending on your company's size, status and situation, here are some recommendations your accountant may make to reduce your taxable income:
Switching up your company's tax structure. Changing your business structure can allow for a lower tax rate in some circumstances. Maybe you've already switched from a sole proprietorship to an LLC, to allow for the flexibility of a pass-through entity when it comes to taxes. But now your company may be at a stage where changing from an LLC or S-corp to a C-corp, for example, could lead to even further tax advantages.
Add employee benefits in lieu of raises. As an employer, contributing more to employees' health insurance, for example, is a way to show their value to your organization without raising your tax burden in the process.
Delay year-end billing. Got a project planned for the end of the year? Consider billing for it at the start of 2021 and lower your liability. Showing that you made less money in 2020 means less income on which you can be taxed.
Write off bad debt. Got a client who you are sure won't pay? Demands for payment going unheeded? Your accountant may recommend a Bad Debt Deduction, where you write off that debt as money you made in 2020. As you are more than likely not receiving that payment, it won't count as profit, reducing your taxes owed.
Claim depreciation on recently purchased fixed assets. Need new computers, imaging equipment, landscape machinery or manufacturing technology? Now is a good time to invest in things you need to keep you business running and growing. Value of these fixed assets can be immediately depreciated. Ask your accountant for help revaluing other company fixed assets - it's possible some can be deleted altogether this year.
These are just a few possible ways to cut your company's tax liability. Each year, Kerby Accounting & Business Solutions works with clients from myriad industries on their unique situations to brainstorm a custom plan just for them. Not every strategy works for every business. It takes an experienced accountant to guide business owners to a smaller, more manageable taxable income number where deduction planning has been carefully considered and implemented.
We are here to help. Call us today for a free phone consultation or safe, in-person appointment.