The optimal tax mitigation strategies really do have the potential to enhance your company’s bottom line. Take full advantage of the tax tips detailed below and you just might save tens of thousands of dollars. Without further ado, let’s take a look at the top tax-savings tactics for business owners.
Do You Have the Right Business Structure?
The structure of your business is of the utmost importance, especially in the context of taxation. As an example, a LLC that is multiple-owner is by default a partnership. In contrast, a LLC that is single-owner faces taxation as a sole proprietorship. It is possible for certain LLCs to be taxed as either a S corporation or a C corporation by filing the Form 2553 with the IRS. It is interesting to note business owners who have a LLC can still choose to be taxed as a S-corporation in a retroactive manner at the end of the year. However, there are certain conditions that apply so be sure to discuss the matter with a tax professional.
Take a Deduction for the Purchase of New Equipment
If your business bought new equipment, you should know you can take a tax deduction. The IRS tax code’s Section 179 was written to help business owners invest in their own company. This section empowers businesses to deduct the entire purchase price of software or qualifying equipment bought or financed in the tax year from gross income.
The deduction is available all the way up to $1,040,000 on both used and new equipment including software that is off-the-shelf. However, the equipment must be purchased or financed and used in a service capacity prior to the calendar year’s end in order to take the 2020 tax year deduction. However, there is a spending ceiling of $2,590,000 on equipment purchased in 2020. The deduction starts to phase out dollar-for-dollar when this amount is reached.
Furthermore, the deduction is no longer applicable when purchases reach $3,630,000. However, if the cap on spending is reached, it is still possible to take advantage of the full bonus depreciation for the year. This bonus is available for all qualified equipment bought and put into service between September of ’17 and January of ’23.
Mind Those Vehicle Expenses
Do you use your automobile to conduct business, visit clients or attend meetings? If so, you can deduct your expenses through the standard mileage reimbursement rate or by calculating the expenses on your own. Furthermore, if you use two or more vehicles for business purposes, be sure to include each of them in your deductions. Just be sure to maintain an accurate mileage count and receipts to show Uncle Sam in the event you are audited.
Consider Changing Your Company’s Retirement Plan
Has your company significantly changed since you initially launched the retirement plan? If so, ensure the plan is still suitable. From safe harbor 401(k) plans to profit-sharing plans, SIMPLE IRAs and beyond,
there are numerous options to choose from. A qualified plan provides deductions on contributions and also a tax deferral for earnings on contributions. Discuss these options with your tax and financial advisor before choosing one for your business.
Any opinions are those of the author and not necessarily those of Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.