Running a small business comes with a lot of unique challenges, not the least of which is managing your finances. If you can’t determine how much money is coming in or going out, it’s almost impossible to know whether you’re succeeding or not.

One area where many small business owners flounder is taxes. Even if you’re paying taxes on time, you may be overpaying and not realizing it. Or, you could be doing something wrong and setting yourself up for an audit in the future.

Overall, the best strategy is to prepare for taxes ahead of time so you’re not left with a significant financial burden at the end of the fiscal year. So, here are some crucial tax planning tips to help you stay on top of everything. Best of all, you can have a business tax attorney by your side with France Law.

Make Sure to Itemize Deductions

Business expenses can add up, and they can help you minimize how much you pay in taxes every year. Some examples of business deductions can include:

• Rent or Mortgage Payment - If you work from home, you can deduct a portion of your rent or mortgage payment. If you lease a storefront, you can also deduct those payments from your earnings.
• Utility Bills – With a home business, you can claim some of your bills against your income. Otherwise, utility bills for a dedicated office or storefront can be deductible.
• Inventory or Equipment – You may have to buy equipment to run your business, which may include hardware and software. Also, if you sell products, you can deduct the inventory you keep on hand to make those sales.
• Payroll - If you have to pay employees to run your business, you can deduct their payroll against your earnings. However, you also have to pay your portion of the payroll tax, so don’t forget about that.

Overall, anything you spend money on to run your business (within reason) can likely be deducted. By tracking and itemizing these expenses, it’s much easier to lower your taxable income and your overall financial burden.

Accelerate or Defer Payments and Invoices

If your business is service-based, you have to send invoices to clients and wait for their payments. While it can be annoying to wait for cash to come in, you can use that to your advantage toward the end of the year. The way to do this is to accelerate or defer payments as necessary to improve your tax liability.

Accelerating your payments means asking for clients to pay their outstanding invoices before the end of the calendar year (December 31st). You may want to do this to lower your tax rate for the following year, particularly if you’re already in a high bracket for the current year.

Deferring payments means having clients pay after the end of the year so you don’t have to pay taxes on those earnings right away. Deferring payments can work well to lower your overall bill, but you have to consider how that will affect next year’s tax burden.

Working with tax attorneys can help you understand whether either option is viable or necessary for your business.

Utilize Retirement Accounts

Traditional IRAs and 401k accounts are great for tax purposes because you can deduct contributions from your total income. So, it’s best to contribute as much as possible throughout the year to lower your tax payment.

For a non-Roth IRA, the maximum contribution is $6,500 for 2023 (or $7,500 for those over 50). With a 401k, the maximum contribution is $22,500 for the year ($30,000 for those over 50). As you can imagine, maxing out these accounts can limit your liability significantly.

Take Advantage of Tax Credits

The IRS has a full list of business tax credits that can help subsidize your operations and reduce your overall tax burden. While your business may not qualify for many of these credits, some common examples include:

• Work Opportunity Tax Credit – If you employ individuals from a marginalized group, you can claim up to 40 percent of their earnings in the first year and half of those earnings in the second year.
• ADA Access Credit – If you employ individuals with special needs, you can upgrade your office to make it more accommodating with accessibility features. You can then claim up to half of all qualified costs, up to $10,250.
• Retirement Plan Credit - Setting up an employee retirement plan costs money, and you can recoup up to $5,000 of those costs with this credit.

Don’t Forget to Report Losses

Business losses can be a huge advantage when it comes to reporting your taxable income. While operating at a loss can be a bad sign, there are ways to utilize those losses and benefit in the long term. A loss simply means that you spent more than you brought in over a given period, such as a fiscal quarter. By reporting those losses, you can either lower your tax burden or claim a refund for taxes you’ve already paid.

It’s imperative to know that you can’t intentionally force your business to lose money to pay fewer taxes (as that’s fraud). However, if you have a slow quarter, you can still benefit slightly.

Work With a Tax Professional Like France Law

France Law specializes in helping small business owners like you navigate the complicated world of taxes. Having experienced business attorneys by your side allows you to maximize your earnings and minimize your tax burden. We can help you set up your books, manage your cash flow, and itemize your deductions so your business is a well-oiled machine. Don’t wait for tax season to start – contact us today!