Join the club. Our How to Lower My Taxes article series is designed to help you minimize the small business taxes you'll have to pay.
In two previous tax tips articles, we explained how to pay less taxes by decreasing your revenues and how to pay less in taxes by increasing your expenses.
But, beyond that, there are still quite a few things you can do lower your small business taxes.
Here are two very popular end of year tax tips to achieve lower taxes.
Contribute to a Retirement Plan
The end of the year is a great time to contribute to your tax advantaged retirement plan. If you don't have one, give yourself an early holiday present and set one up.
Your contributions reduce your taxable income and lower your taxes.
Some retirement plan contribution deadlines go past the end of the year, but it's best not to procrastinate. The sooner you get the money in the account, the sooner that money starts compounding.
If you want top open a Keogh plan, you have to do it before December 31. You can't procrastinate on that one! The same is true for a solo 401(k) plan, a great retirement plan for a one-man or one-woman shop.
Here's a good tip for you. The Simplified Employee Pension Plan, commonly known as a SEP-IRA, is a small business retirement plan that should not be overlooked. It's specifically designed for self-employed people and small-business owners. For the 2007 tax year, you are able to contribute and deduct up to $45,000. That bumps up to $46,000 in 2008.
Write Off Purchases and Take a Section 179 Deduction
We've talked to you before about Section 179 Deductions.
For 2007, you can immediately deduct up to $125,000 worth of business equipment. No need to depreciate it over many years. Just expense it!
The only caveat is you have to have the equipment in place and running before the end of the year. Mind you, it's not limited to equipment. You can also buy software and then write it off as a Section 179 expense.
If you don't use your Section 179 deduction this year, it vanishes. Use it or lose it. But, don't fret – you'll get a new supply of Section 179 deduction power next year. It just doesn't carry over from year to year.
What are you waiting for? Go spend your money on business equipment and software and start saving big on taxes.
One final word before you get carried away with spending -- your Section 179 deductions cannot exceed the taxable income for your business. You also can't take a Section 179 deduction if you purchase more than $500,000 worth of Section 179 qualifying assets. You'd hate to spend a lot of money and then realize that you can't take that deduction!
Beware the AMT
The alternative minimum tax, or AMT as it is known, is a parallel tax system in which many tax breaks are disallowed. As you decide on how to manage your taxes, you'll need to keep the AMT top of mind. Again, you'd hate to go through all the hard work of managing your taxes only to find out that it was all for nothing.
Other Small Business Tax Writeoffs
There's a ton of other things you can do at the end of the year to get your taxes down. Everything from writing off inventory to buying a expensive SUV.
This is where the rubber hits the road for your relationship with your accountant.
If they don't give you good advice on managing your taxes, it's time to ditch them and find an accountant that helps you grow your business, rather than just robotically filling out your tax forms for you while adding zero value.
So that concludes this series of articles on end of year tax tips…oh wait, we've still got one more: End of Year Tax Tips That Probably Don't Work.