Date: December 9, 2022
Tips to Save Money on Your Taxes Before 2022 Ends
Holiday shopping, end of year business tasks, traveling, inflation – these things are at the top of most business owners’ thoughts. With the end of the year approaching, there seems to be so much to do and this time of year goes by so quickly! Most business owners aren’t going to think about taxes until April, when the tax return filings are due. However, taxes should be one of the top things a business owner thinks about at the end of the year. Did you know there are still things you can do now to save on your 2022 taxes? Be proactive and help reduce your tax burden legally with these tips.
1. Here is something you can actually thank the IRS for – as noted in Publication 535. You can prepay your business expenses (like marketing, accounting, rent, etc) for 2023, assumingyou are a cash basis taxpayer. To get the deduction for this year, you will need to make sure that you submit your payment by December 31st. If you do pre-pay your rent, it’s also a good idea to give your landlord a head’s up so they are aware of the legal strategy and don’t think the check amount is a mistake. As always, cover your assets – make sure the payment is made electronically so that the funds have left your account by December 31st.
2. Time to prepare for those pesky estimated tax payments! January 15th marks the due date for fourth quarter estimated payments. As a business owner, no doubt you want to pay the least amount that you must – but you are probably also aware that it is a big guessing game, and if you get it wrong, you get slapped with fees and penalties. Now, if you have been paying throughout the year (which is recommended) then you will have a good idea of what you’ll need to pay in January. A good rule of thumb is if your profits increased (for 2021), you’ll want to pay 100% of the tax liability that you had the previous year. If your profits decreased, you’ll want to pay 90% of the previous year tax liability. It’s important to note that if your Adjusted Gross Income for 2021 was $150,000 or more, then you are required to pay 110% of the tax liability. It’s to your benefit to have an expert on your side, looking out for you and helping you make better choices each month so the amount you have to pay each quarter is already minimized to be as low as legally possible, and that you have a plan in place to cover the payments you do have to make.
3. Is your business entity the right fit? There isn’t a ‘one size fits all’ since the proper business structure is determined based on several factors: taxable income, financial habits and practices, number of employees or shareholders, etc. Many business owners starting out will generally go with either a sole proprietor (one-man/woman-show with independent contractors), or a Limited Liability Company (which slightly limits your exposure to liability). Although this may be the best option at first, it’s important to re-evaluate as your business grows, you will want to make sure that the entity you selected evolves with you, otherwise you will end up overpaying in taxes. Having the right business growth expert on your side will help ensure that you are in the best entity structure for your particular situation, so that you do not become one of many business owners that end up overpaying.
When it comes to taxes, there are a lot of things that business owners need to know in order to avoid making costly mistakes. By working with a qualified tax strategist who understands your specific situation, you can ensure that you’re paying the least amount of tax possible and growing your business (and your future) in the process. We are passionate about protecting entrepreneurs and helping small business owners crush their financial goals and stop overpaying on their taxes! If you would like more information or guidance tailored specifically to your business needs, please contact us here.