If you own a small business, you need to keep an eye on when you make your payments and how those payments will impact your tax liability from one year to the next. The three payments that you need to pay close attention to are gifts and donations, expense payments and buying assets at the end of the year.
Gifts & Donations
When your business makes gifts and donations, they can be written off on your taxes. They can be used to help lower your taxes, which is why you need to think carefully about what tax year you want to use those benefits in. If you need a break on your taxes, be sure to make donations before the year ends.
If you make a cash donation, you are going to need to follow through on that donation. You are going to need to make sure that the check you wrote is cashed in a timely manner. Your donation counts in the year that the check was cashed, not in the year that you wrote the check.
The nest thing that you need to keep track of is expense payments. Keep in mind that when you pay on things such as business loans and insurance, you are able to deduct those payments as expenses against your income. This is a great way to bring down the taxable income that your business generates. Just make sure that you pay all of your expenses on time throughout the year.
If you really want to reduce your taxable income and you want to pay off your loans, consider making bigger payments this year so that you can get out of business debt and lower your tax liability at the same time.
Another way to lower your tax liability is through the purchase and use of assets. When you purchase new equipment for your business, we are able to claim it as a depreciation expense. The great thing about a depreciation expense is that you are able to claim it over a number of years.
Keep in mind though that when considering a depreciation expense for an asset, the IRS considers not when you purchased the asset but when you started to use it. For example, if you bought some new equipment in December 2017, but you didn't start using it until February 2018, you couldn't start claiming a depreciation value for the equipment you hit the tax session for 2018. To learn more, contact a company that specializes in small business bookkeeping services.