As the end of the year rapidly approaches, it's important for small business owners to be aware of the various tax strategies available to them. In this latest Maven Think Piece, we will discuss four such strategies that can help reduce your tax bill and protect your bottom line. So if you're looking to minimize your taxes before 2022 comes to a close, read on!
1. Deferring Income
One tax strategy that small business owners can use to minimize their tax liability is to defer income. This means delaying the receipt of income until after the end of the year. For example, if you are a freelance writer, you may want to wait until January to send invoices for work that was completed in December. This will allow you to postpone the recognition of income until the following year, when you may be in a lower tax bracket.
2. Accelerating Expenses
Another tax strategy that small business owners can use is to accelerate expenses. This means paying for expenses before the end of the year in order to get a deduction on your taxes. For example, if you are planning to make a large purchase for your business, such as new office furniture, you may want to make the purchase before December 31st in order to deduct it on your taxes for that year.
3. Invest in Retirement Accounts
Small business owners can also reduce their tax liability by investing in retirement accounts. This is because contributions to retirement accounts are typically made with pre-tax dollars, which means that they are not subject to income tax. Additionally, many retirement accounts offer tax-deferred growth, which means that investment earnings will not be taxed until they are withdrawn from the account.. Examples of retirement accounts include 401(k)s and SEP IRAs. By contributing to these accounts, small business owners can reduce their taxable income and save for retirement at the same time.
4. Use Tax-Advantaged Accounts
Small business owners can also reduce their taxes by using tax-advantaged accounts such as Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs). HSAs and FSAs are both types of accounts that offer tax benefits for medical expenses. Contributions to HSAs are made with pre-tax dollars and grow tax-deferred, while withdrawals from FSAs are not subject to income tax.
Conclusion
As a small business owner, it’s important to be aware of the different tax strategies that can save you money come year-end. By deferring income, accelerating expenses, investing in retirement accounts and using taxed advantage accounts, you can minimize your tax bill and keep more of your hard-earned money. However, this is just a general overview – it’s always best to consult with a professional to ensure that you are taking advantage of all available opportunities to reduce your taxes. Our team of experts at Maven Bridge Capital would be happy to help review your situation and come up with a plan that makes sense for your business.
At Maven Bridge Capital we help business owners achieve stability in their financial life by providing them with holistic wealth advice, bringing balance between their personal and business finances. Allowing them to feel more confidence in realizing their future goals and life beyond their business. To learn more, contact us today to schedule a complimentary discovery meeting.