One question that always pops up is how you can save money on your taxes.
When you own your own business, there are ways that you can save money on your taxes, unlike when you work for someone else and receive a paycheck.
Business owners can deduct their expenses from their revenue and they are taxed on their net income (revenue minus expenses). Employees are taxed on their gross income.
Just remember that expenses are those items that are necessary and ordinary for running your business. Things like clothing and makeup are not expenses for your business.
Is Your Bookkeeping Done?
Before you even know how much money you owe on your taxes, your bookkeeping for your business needs to be done.
There are programs like Quickbooks and Freshbooks to help you keep up with your bookkeeping on a regular basis. Or you can hire a bookkeeper to help you with your bookkeeping, especially if bookkeeping just isn't your thing.
You should be doing your bookkeeping at least monthly, so that you know what your monthly profit is.
If you don't know what your profit is, then you really shouldn't be looking into ways to save money on your taxes. You should be getting your bookkeeping done, because maybe you haven't even made a profit yet this year.
What can you do to save on your taxes?
After your bookkeeping is done, then you can look into ways to save money on your taxes for the end of the year.
Donate to Charity
Charitable donations to other organizations are tax deductions for your business, usually. You may need to check with your state though to make sure.
Figure Out Your Home Office Deduction
If you work out of your home, which who am I kidding 99.9% of online business owners work from their home, you most likely qualify for the home office deduction.
When you figure out what you can deduct on your return from the home office deduction, you can deduct that from your profit.
The home office deduction does not show up on your bookkeeping reports. It only shows up on your tax return.
If you need more help figuring out the home office deduction, check out this in depth article about the home office deduction and how to calculate it.
Bill Your December Invoices in January
If you do the work for a client before you bill for it, you could save the invoice for January for billing. When you bill it in January, then it doesn't show up as income until you send the bill and/or receive cash. (This is where the accrual versus cash basis of accounting comes into play.)
From a professional standpoint, though, you should collect the payment, or at least 50% of the payment before the services you are going to deliver are delivered. I do not recommend billing your invoices at a later time, because you can also forget about sending them at all.
Contribute to Your Retirement
When you have your own business, you usually qualify for an SEP-IRA. You'll want to reach out to a financial advisor for more information and to work on getting one set up.
But you can easily contribute your income to your SEP-IRA and reduce your taxable income at the end of the year.
Contribute to Your Health Savings Account
If you qualify for a health savings account, you should definitely contribute the maximum amount of money to your HSA account as you can.
You'll want to look into if you qualify for an HSA account before you just invest. Not everyone qualifies and there will be penalties for investing in one if you don't qualify.
Health savings accounts can also be used as retirement accounts when you reach retirement age. They do not have to be used just for health and medical expenses.
Make Investments in Other Businesses or Business Ventures
You can invest in other businesses or business ventures.
Do you want to build a portfolio of businesses that you invest in? Or maybe you want to invest in properties and homes? Or maybe you want to be a silent investor in other businesses?
Making these investments can also help to reduce your taxable income in your business.
Get More Education
Are there any courses or coaches that you have been wanting to invest in to help you with growing and expanding your business?
Now is a very good time to invest in these courses and coaches and make the payment.
Learning new things in your business is something you should always be striving for. Your business will grow faster the more you continue to learn.
Pay Your Bills from January in December
Do you know what bills you will be getting in January? If you have the cash flow in your business right now, you can pay your January invoices now.
Also keep in mind, the businesses you may want to pay, may also want to save on their tax bill and won't be able to accept your early payments. But most businesses are always welcoming to extra cash coming in.
Reach out to your vendors and see if they can send you an invoice now for services that you are going to be using in January.
Plan Out the First Quarter of Next Year with Investments
Are you going to need certain softwares or vendors for your business in the first quarter of next year for a program or launch you may be doing?
Buy the software now. Invest in the copywriter now. Hire the website designer. Hire the new coach. Find a new mastermind to join.
Make the payment now before the end of the year for these investments to help your business in the first quarter of the year.
Review the List of Business Deductions
Check out the list of business deductions and make sure you are taking all of the deductions that you are able to take for your business.
Not only do you need to make sure you are taking all the deductions you are able to, you also want to make sure you aren't taking deductions that you shouldn't be taking because they don't count as deductions for your business.
Pay Yourself a Bonus
If you are a sole proprietor or single-member LLC, then paying a bonus to yourself will not have any effect on your business taxes.
You may need to talk to an accountant or qualified professional about this bonus. But you can pay yourself a bonus in your business to help reduce the amount of tax that your business owes.
Get Professional Help
An accountant or other qualified professional can always help you make sure you are maximizing your deductions in your business.
There are professionals out there who know more about the deductions you can take in your business to help you pay less in taxes. Find the right one that can help you to maximize your deductions at the end of the year.
Tax Saving Strategies to Help Your Business at the End of the Year
You'll want to follow the advice in this guide throughout the year, not just at the end of the year.
Yes you can invest heavily in December for your business. But if you do it throughout the year (and also do your bookkeeping on a regular basis), you'll know exactly where you stand at the end of the year. Plus you should also be making quarterly tax payments to help reduce your bill when you file your tax return.
