Maximize Your Tax Refund with These 5 Tax Tips
It’s likely that as a small business owner or entrepreneur, no one has ever accused you of being a tax expert. Most people aren’t it seems: a survey of small businesses showed that 93% had overpaid their taxes over the past dozen years.
Those of you fighting in the trenches of small business know how hard it can be. Margins are razor thin and everyone is fighting for your market share. The last thing you need to worry about is paying more than you absolutely have to in taxes. The best ways to maximize your refund might not be the most obvious, so here are 5 actionable tips you can use today.
#1 – Swap January for December
Be tactical when it comes to taxes. Take a look at your income and expenditure this month, and decide whether it might be smarter to wait until January to invoice and get paid by your client, thus avoiding slipping into a higher tax bracket by mistake. Holding off on an extra few thousand dollars of revenue could make all the difference when it comes to maximizing your tax refund.
On the other hand, are there any bills you can pay in the last week of December instead of waiting until January? Is there an opportunity to prepay a month or two of office rent? You can also look to buy equipment you know you’ll need next year in December. If you’re looking to refresh your website, another smart idea is to buy upfront packages now for hosting, images, themes, and anything else you may need.
#2 – Don’t sell your old equipment
When deciding what to do with old property your first instinct might be to sell it. You paid good money for that executive sofa, and you want to make something back on it! If it’s no longer bringing value to your business, it’s probably time to help it find a new home. Look into whether it would be better to abandon it (an ordinary loss) or sell it (a capital loss). Abandoning it is fully business deductible, so it’s fully worth seeing if this method can help maximize your refund.
#3 – Remember to update your mileage logs
Tracking your business mileage can feel like it’s way more hassle than it’s worth. We urge you to think seriously about this. Here’s a scenario: let’s imagine you currently drive for your business around 300 miles per week, but are not logging it in any way. At the current IRS standard mileage rate of $0.58/mile (in 2019), that is approximately $8000 you’re leaving on the table in business deductions.
If this shocks you, it should. It could make the difference between you owing taxes and getting a nice refund! There are so many smartphone apps out there that can easily help you track your miles, so there is no excuse. Even if you keep paper records, you can still submit to the IRS.
#4 – Consider using a coworking space for double the benefits
Of course, we know there are business deductions when it comes to the usage of a home office, but there might be a way to receive double the financial benefit. Freelancers, remote workers and entrepreneurs have flocked to coworking spaces over the past few years. Coworking has numerous benefits including increased opportunities for collaboration and networking, and can result in feeling less isolated.
And while your coworking membership is fully tax deductible, you can also save money throughout the year by only paying for the time you actually use the space. In addition, many of your expenses incurred while at the coworking space can be deducted, such as printing, renting a conference room, attending networking events, and so on.
#5 – Pay it forward to your staff
This one is a true win-win. Your team has worked hard all year, and now is the time you can show your appreciation by rewarding them with a bonus, gift, award or even a team outing during the holiday season. Not only does this improve morale and promote goodwill among your employees, it is also a legitimate tax-deductible expense.
There are rules here though. It’s worth remembering that some incentives will be taxable for your employees. According to the IRS, “supplemental wages are compensation paid in addition to an employee’s regular wages. They include, but are not limited to: bonuses, commissions, overtime pay, payments for accumulated sick leave, severance pay, awards, prizes, back pay, retroactive pay increases, and payments for nondeductible moving expenses.”
If you want to maintain your image as a good boss while still achieving maximum tax refund potential, make sure you read through this IRS document to decide which incentives are best this holiday season.