What do you think is the most common characteristic of small and medium businesses on a growth path? Sales, yes, revenue almost. But most small and medium businesses who score both, often face growth problems due to a variety of reasons. And the most common hurdle every business face in their growth stages is revenue leakage due to poor tax planning.
Effective tax planning and preparation reduces the total taxable income, cuts down your tax rate and helps you leverage all the available tax deductions and credits available. In addition to this, effective tax planning and preparation minimizes the litigation and saves businesses from legal liabilities.
Also right tax planning not only cuts the revenue leakage to save money it shed up light on potential opportunities that can leverage and scale as you grow.
Why do small and medium businesses falter in tax planning and preparation?
No business aims to leave cash on the table by forgoing tax opportunities or making bad decisions but it is often the case. Given they wear multiple hats from management, product development, operations, staff management and even customer services, tax planning doesn’t receive as much attention it demands unless they hire dedicated tax consultants or tax preparations services like Outsourced Bookkeeping.
If you are a small and medium business that finds yourself on a similar boat, then this blog is for you. Today with inputs from our tax consultants and accountants at Outsourced Bookkeeping we provide you with 3 key preparation tips that can help you save money and claim tax benefits. Read on:
Leverage bad Debts to reduce tax liability:
Stubborn accounts receivable is another common problem in most small and medium businesses but it can be a blessing in disguise when it comes to a tax deduction (provided you collect it eventually). For a business that uses the accrual method, accounts receivable can be written off as bad debt and be deducted from the gross income to reduce the tax.
However, to write off as bad debt businesses must show that they have taken enough steps to collect the receivable and failed. So businesses can make one last serious effort at the year-end and when a business fails to collect, they can be written off as a bad debt to reduce the tax liability.
Choose the right business entity type:
Because they are easy to start, the majority of the businesses in the US are sole proprietor ships. But this may not be always optimal when it comes to claiming a fruitful tax deduction. Sole proprietor ships are considered pass-through in the US and which mean they are connected to the owner and the business ends up paying the individual tax rate based on the income bracket of the sole proprietor.
The tax rate may vary depending on the ownership and how much a business is taxed may vary depending upon the type of business entity, incorporation or ownership structure. So for a business, it is advised to know the details and make necessary adjustments based on the returns, for the next year.
The right time to make improvements in workspace:
It is helpful, if you can make repairs or improvements before the year, since IRS categorizes them as cost of property maintenance (tax-deductible).
While a business can deduct this repair cost within the year, improvement costs are to be depreciated over 27.5 years. However small business owners must tread carefully in two areas here:
Categorization of home office: Know for sure if your office space falls under home office since most small and medium businesses blend their locations.
Scope of repairs and improvements: In general, restoration & betterment fall under improvements and hence their depreciation may differ.
So it is always advisable to hire expert tax consultation services like Outsourced Bookkeeping to help you implement these tax-saving strategies in the year-end.
How Outsourced Bookkeeping can help?
As one of the most trusted remote accounting firms in the business Outsourced Bookkeeping has a remarkable track record in helping businesses win their accounting and tax preparation game. With a team of expert and experienced accountants, we provide a complete spectrum of bookkeeping, accounting, tax consultation and tax preparation services for all types of businesses – small, medium and large.
So if you are a business that is short of time or expertise to make the most out of tax deduction, our tax consultants at Outsourced Bookkeeping can help you find better opportunities to save you time and money. For tax consultation and tax preparation services, you can contact us here: https://outsourcedbookeeping.com/