February is not too late for New Year Resolutions. We at Perfect Tax and Finance believe that a perfect tax strategy begins a year ahead of time. Our experts have compiled a list of 10 tips to help small and medium businesses create an effective tax strategy.
Tip #1 Hire an Expert.
One thing where you need to spend money (forget about saving!) is when you hire a tax specialist. An expert can help minimize tax amounts and maximize refunds. It makes total sense to communicate with a tax professional to evaluate your current situation and determine tax strategy reforms well in advance.
Tip #2 Plan ahead.
You may procrastinate anything but not tax strategy planning. However, an effective tax strategy designing takes a significant amount of time and requires a good understanding of the tax laws, government policies and the current tax situation in your company; alongside a reasonable estimate of potential financial changes in the company.
Tip #3 Utilize Accounting Software.
While this tip seems to be a no-brainer for business owners, small and large, it still needs to be on the list as a constant reminder. Accounting software such as QuickBooks save time, effort and also make the entire process of recording information more productive.
Tip #4 Setup a Payroll Amount to the Directors.
This could be a powerful tax-saving tool. If you are a small business with 2-3 partners, then you can set up a payroll system for each partner based on their net income. You can also put your spouse or other family members on the payroll to include that on your expenses records.
Tip #5 Business Account for Business Transactions only.
You might have opened a business account for your company. It is essential to classify or segregate your transactions as personal and business transactions (& payments that comply with regulations) before you decide which debit card to use. Using business account for personal transactions and spending is not a great way to run a business.
Tip #6 Make Charitable Donations.
Charitable Donations in the US can be claimed for tax returns under certain conditions. You need to remember that donations made to only qualified charitable organizations are deductible. Churches, synagogues, temples, and mosques are considered de facto charitable organizations. Donations made to such organizations are deductible although they are not officially present on the IRS Exempt Organizations Select Checklist.
Tip #7 Ask for Receipts for both online and offline transactions.
Whether you made a digital transaction or paid via cash, a spending is a spending and needs to be in the records when it comes to filing taxes. Make sure you ask for receipts, no matter the amount, in order for the transaction to be substantiated by a bank record.
Tip #8 Volunteering Expenses are Deductible.
Yes, that’s true. The time spent on volunteering for a charitable organization is not deductible but you can out of pocket expenses (parking fees and tolls, travel expenses, uniforms, clothing, supplies, etc) relating to volunteering are deductible as long as they are not reimbursed to you or considered personal.
Tip# 9 Inventory Check.
Equipment upgrades, inventory purchase, office supplies stock up - these transactions are also counted as expenses. So, make a list of purchases you can make now to get the most out of your deductions and run it by your accountant for advice.
Tip #10 Contribute to a Retirement Plan.
Payments made to retirement funds are tax deductible and reduce your income for the year. Speak with your financial planner to determine the best plan for your business, set up a retirement fund and make regular contributions.