The clock is ticking and December 31st will be upon us in no time flat. In addition to finding the perfect gifts, decorating the house, and cooking everyone’s favorite dishes, one of the key things that should be on every business owner’s list is organizing the finances. If you procrastinate on getting your finances organized, you could end up overpaying your taxes. Garrett Gunderson, owner of Wealth Factory, and guest contributor to Forbes estimates that 93% of small business owners overpay their taxes; with those odds, you are likely one of them and here are 7 tips to make sure you don’t overpay your taxes this year.
1.Carve Out Time To Get Your Taxes Organized. Several of my Organize Your Life students, are already ahead of the curve. They were keeping accurate mileage logs all year, logging their business expenses, remitting their taxes, and accounting for their expenses. If you were not one of the people who has regularly scheduled time this year to keep your taxes on track, schedule time to get organized before the end of the year.
Some of my clients like to take a full day. Others like to schedule 1-2 hours at a time. It truly depends on how far behind you are. One thing is for certain, there isn’t much you can do after December 31st so it is best to get on top of it before the end of the year.
2.Hire Your Kids. According to an article on Nolo, in 2018, you can pay your kids up to $12,000 per year. That is up from the previous $6350 in 2017. The IRS will want you to prove that your child is an actual employee. Even at this late stage, you can hire your child at a reasonable hourly rate to organize files, calculate deductions, mail out your business-related Christmas cards, work in your office, send packages to your best clients, and any manner of things.
3.Legitimize Your Home Office. If you work from home, and can justify that you are also using other parts of your domicile for business, you may be entitled to further deductions. In this day of social media, deducting the part of your home where you shoot videos and do FB Lives, and have presentations, may be allowable. The most important thing to do is document it all. Yes, a percentage of your home office, as related to the square footage of your home, is allowable, and so are the expenses such as housekeeping, internet, hydro, and other relatable items.
Legitimize your home office by making sure it is definable. Ideally, your office occupies a room and not a portion of a room. Go back and look at your household related bills and apply the portion as related to the percentage of square footage your office occupies.
4.Contribute to a Registered Retirement Savings Plan. Seriously! There are experts who tell people not to take the deduction and contribute to a 401k, IRA, or RRSP in Canada. They say that you will have to pay tax when you take it out. Yes, that is true however contributing to a retirement savings plan can give you deductions now when you need them. Furthermore, yes, you will have to pay tax when you withdraw the money however if you do not save anything and have no retirement savings then who was the fool?
During your prime earning years, you are likely in your prime expense years. You might be paying kids tuitions, car payments, mortgages, and a host of other costs. Failing to save now, as hard as it is, is only going to increase the tax bill. Save the money. Create a retirement and get your deductions.
In the United States, you have until December 31st to contribute whereas Canada allows a couple of extra months to contribute retroactively for the previous year. Ideally, you want to get your contributions done before the end of the year.
5.Go Back and Calculate Mileage. In 2018, in the United States, the deductible mileage rate is 54.5 cents/mile. That is up a full penny over the previous year. If you missed some mileage, I hope you are a student of mine. All of my students keep a paper planner where they record meetings. You can go back and calculate the mileage you missed fairly accurately and pay yourself out from your company.
6.Invest In Your Business. Yes, if it has been a good year, and you will owe taxes, now is the time to invest some money into your business. Want a new website? Hire a firm now. Want to integrate a digital marketing strategy? Do it now. From stocking up on printer cartridges to hiring employees, now is the time to do so if you have the cashflow.
If 2018 has not been a robust business year, do a tax owing calculation before you decide to spend any money.
7.Be Generous. Whether you want to contribute to a charity or run an employee incentive, now is the time to do so. I recently did a performance bonus challenge for my team. I offered them each $1,000 if they hit a specific goal. They did it! I get to pay them bonuses and deduct them and they get some extra cash for Christmas. It is a win-win.
Lastly, now is the time to clean up your finances. Waiting until the new year means that you have very little hope of going back and taking the deductions you missed. Work with your CPA, prioritize your finances, and get yourself organized. It truly is one of the best gifts you can give yourself.