End-of-Year Tax Savings: Are You Leaving Money on the Table?
One of the questions we hear most often from business owners in the early part of the year is, "Hey, is there anything I can still do to produce a lower tax bill for last year?"
The answer? “Absolutely, yes.”
That’s because business owners commonly make two mistakes that cost them dearly – but thankfully these can be remedied before you file your return.
If you’re a business owner, take a look at the following. Are you making these two common mistakes?
One of the biggest oversights we see is business owners forgetting to review the list of allowable owner fringe benefits. These are legitimate, IRS-approved perks that can lower your taxable income.
Have you thought about the annual meeting you held that also doubled as your vacation?That might be deductible, but only if you've documented it properly.
Not sure what counts? We’ve got you covered. Click the link below to download our comprehensive guide to Owner Fringe Benefits. It’s a straightforward way to see what you’re eligible for and ensure you’re not leaving money on the table
2. Not Properly Categorizing Entertainment and Meals
Look at your profit and loss statement. Does it have a big bucket labeled "Entertainment" or "Meals"?
Look at your profit and loss statement. Does it have a big bucket labeled "Entertainment" or "Meals"? If so, here’s the issue: The IRS has strict rules about what qualifies as entertainment (spoiler: it’s a very limited category). For instance, treating your top client to Taylor Swift tickets might fall under entertainment, but most businesses aren’t doing that.
Here’s where you might be missing out: If your company’s holiday party or team-building dinner is lumped into “Entertainment,” your CPA won’t know it’s a deductible expense unless they ask—and many CPAs are too swamped during tax season to dig into the details.
3. Improper entity form or method of accountingIt's not too late to do a late S-election if you are a corporation or an LLC, but it is too late if you try to do so after the first few months of the year. You can change your entity tax type after the year end based on an automatic approval process the IRS has established -- even though it's technically late -- and have it be retroactive for the preceding year.
Similarly, if you want to change your method of accounting, whether it’s to become a cash basis tax payer if accrual (or the other way around if it works out for you), or how you account for inventory so that you can start expensing more of your inventory, you can do so after analysis of the year in arrears, as these elections are made with the tax return when its filed.
The Bottom Line
By taking a closer look at your owner fringe benefits, cleaning up your expense categories, and potentially changing your entity structure and method of accounting, you can potentially save a significant amount on your tax bill. These steps might seem small, but they add up quickly.
Want to learn more about owner fringe benefits? Download our free guide today and take the guesswork out of maximizing your deductions. Don’t leave money on the table when it could be in your pocket.