Business owners understand the importance and value of their time and efforts. Whether onboarding a new client or employee, following up on a proposal, grabbing office supplies or working on a new marketing plan, small business owners often wear many hats. However, when these same business owners try to play financial advisor or tax specialist and they’re not familiar with the industry, this can lead to money lost, benefits not taken advantage of and rules not aware of. In other words, “saving money” by doing it themselves can be a costly mistake. To help stop this pattern, below are 3 tax-saving tips for small business owners that, if implemented, can potentially help save your business money, not only this year but for many years to come.
Financial planning for business owners can be complex. And financial planning for business owners in Utah can be different than for those in other parts of the country. There are different rules, different laws and different regulations. Spending time researching the specific strategies and advantages available to you, especially when it comes to ever-changing tax laws, can be exhausting. And more than likely, time better spent on other things.
At Rock House Financial, we work with a lot of business owners, and we tend to see a common trend: While they invest all their efforts into keeping their businesses running successfully, they miss opportunities that can save them money. When you’re a small business owner, every bit of profit is valuable to the business’s health. One of the common factors that is often overlooked is their taxes. The importance and impact that a few “simple” best practices can have can be tremendous.
Need help with your financial planning? Schedule a meeting with the financial advisors at Rock House Financial and see how we can help.
1. End of Year Vs. Beginning of Year Transactions
The more profits, the better all-around, right? In many cases, yes, but remember that the higher your income is, the higher your tax-bracket becomes, and this can mean higher taxes. However, the opposite holds true, as well. The higher your deductions, the lower your taxable income.
One tax-planning strategy can be directly paying your upcoming January’s bill in December. This allows you to include this amount toward your current year taxes.
The same goes for making qualified charitable donations to a qualified 501(c) (3) organization. In some cases, this allows a business to deduct up to 50 percent of their adjusted gross income. Although by law, these types of contributions and deductions only apply to specific business structures and depend on what forms they use to file their taxes. Make sure you discuss your options with a financial advisor who is experienced in the tax laws of your area.
On a reverse note, if a client paid an invoice late in December, say on the 30th or 31st, waiting to deposit that check, even just a few days on January 2nd, could help keep your current year earnings down.
As you can see, by being strategic with your payments, contributions, commissions and deductions, just a few days can make all the difference between an excellent filing experience and a sub-par filing experience.
2. Taking Advantage of the ‘Right’ Retirement Plans
Making charitable donations as a small business can provide many benefits for all parties involved. You get to contribute resources that aim to improve the quality of life for those who may be in a less fortunate situation, it shines a positive light on your business in your local community, and you also get to claim the deduction against your annual revenue generated. But this is not the only type of contribution you can use toward your adjusted income.
Contributing to your IRA, SEP or even your business’s 401(k) are all methods used as dual purposes to grow your retirement fund while reducing your business’s taxable income. However, the rules for each type of retirement fund and their contribution limits or stipulations differ per scenario. Discuss your options with a financial advisor you trust.
3. Leveraging the Help of a Financial Advisor
If the roof was leaking at your storefront, and roofing wasn’t your line of business, you’d call an expert to help, right? While most people easily answer yes to this question, they may hesitate when it comes to their financial planning needs. Yet, it’s the same scenario: You need something done right and you’re not the expert. Using the skills of a professional may be the smartest move you can make.
The initial process of searching for, finding and then screening the best professional for you may take some time at first. But once you find the right person, you can put the burden of financial planning in someone else’s hands. Make sure you’re working with a fiduciary financial advisor to ensure your best interests are put first.
A financial advisor’s job is not only to advise you but also to stay current on any amendments or changes made to financial laws that may affect your filing situation. Therefore, your advisor should be able to recommend best practices that align with the personal and financial goals you have for your business. Tax-planning strategies should be a part of your financial plan.
The Bottom Line
Financial planning for business owners can be complex, but as you can see, simple steps can be made to reap big rewards.
Deferring the deposit of a client’s payment for just a few days until the tax year crosses may be the simple activity that protects you from a higher tax bracket, saving you higher taxes. Making a qualified charitable donation can do the same, along with strategic IRA contributions.
If you’re looking for a financial advisor who specializes in financial planning for business owners in Utah, contact Rock House Financial to see how we can help.