Mid-Year Tax Planning for Small Business Owners

For entrepreneurs and small business owners, the way you manage your taxes can be the difference between finishing the year in the red or in the black. This is why it is important to evaluate your tax situation at least a few times a year, so you can ensure you are still on track toward meeting your objectives. As we approach the end of summer, now is a good time to look at areas you can reduce your tax burden between now and the end of the year.
Here are some helpful midyear tax planning tips for small business owners:

Review your Estimated Tax Payments for 2016

Now that we have passed the mid-way point of the year, it is a good idea to take a look at your year to
date revenue and revenue forecast for the remainder of the year. The goal is to make sure you are not
underpaying, otherwise you may incur a penalty. You want to make sure you are not overpaying by too
much either, because there are much more productive ways to spend your money than giving the IRS an
interest-free loan.

Implement a Strong Record-Keeping System

Owning a small business gives entrepreneurs the opportunity to deduct numerous expenses; including a qualified home office, business-related vehicle expenses, advertising, legal and accounting fees, travel, and countless others. But to take advantage of these deductions, you need to have a comprehensive record-keeping system in place. Whether you have time to do this yourself, or you need to outsource this task to someone else, make sure you are keeping organized business expense records. It will make life much easier when you file your taxes next year.

Add Excess Revenue to your Retirement Account

If you are having a better year than you expected (and we all hope to have this problem), you might start
approaching a higher tax bracket, which means having to hand over more of your hard-earned money to
Uncle Sam. One way to help alleviate this concern is to contribute more into a retirement account.
For example, if you have a SEP IRA, you are allowed to contribute up to $53,000 or 25% of your gross
income (whichever number is smaller) to the plan. In some cases, just a few extra dollars in your IRA can
keep you from paying a higher tax rate.

Plan an Employee Holiday Party

Business deductions for meals and entertainment are normally capped at 50%. However, if you have a
party for employees and everyone who works for your company is invited, you are allowed to deduct
100%. Be careful with your invite list, however, because the purpose of the party is supposed to be to
celebrate, not to conduct business. So if you invite customers, clients or prospective clients to the party,
you will only be able to write off 50% of the expenses for those outside the company, which could turn
into an accounting nightmare.

Examine if Your Business Entity Still Makes Sense

Many entrepreneurs start out as sole proprietors or partnerships. But when you grow to a certain point, it
might make sense (from a liability and tax reduction standpoint) to consider changing your entity
For example, many sole proprietors decide to evolve into Limited Liability Companies (LLCs) or Subchapter S Corporations. Speak with yourTax Planning and discuss the tax consequences of potential entity structures as they relate to your specific business, and decide if the time might be right for a change.
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