Business Tax Strategies: What Works and What Doesn’t
It’s the middle of December and it’s time for Solopreneurs and all self employed professionals to think about how much money we will give to the tax collector this year. Tax planning is usually the most important thing at the end of the year, but keep in mind that obsessing over taxes is not always helpful. New York City CPA and Small Business Tax Specialist Michael Hanley recommends that you pause and carefully assess the impact aggressive tax strategies would have on your financial circumstances.
Hanley cautions small business owners and Solopreneurs against spending inflated on business expenses to lower the tax bill, because deductions are not a dollar-for-dollar benefit. Every dollar written off as a deduction generates, on average, just 30 cents in tax savings (depending on your tax bracket and the legal structure of the business). If you have an expensive item to buy and you anticipate your income this year and next year to be roughly the same, buy when you can get the best price on the item, either this year or next. Your savings could be worth more than the deduction.
Hanley also addresses the seemingly common tactic of zeroing out a person’s business bank account by December 31st. Paying for business expenses, adding to your retirement account, or purchasing business equipment or supplies could make the zero bank account balance tactic work. Paying you a bonus, receiving a shareholder distribution if your business is a corporate entity, paying your line of credit at the bank, or paying off business credit cards will not give you legitimate deductions.
Professional development education is tax deductible, so if you have money and a potentially useful workshop or symposium is offered at the end of the year or early in the new year, sign up and pay on or before December 31st. Adding a certification to your CV can make your services appear more valuable to clients and can also justify an increase in your hourly rate and project fee.
You might also consider throwing a party for selected clients, prospects, referral sources, and business colleagues (i.e., no one who can steal a client!). Party expenses will be tax deductible and, best of all, it could turn into a networking bonanza that creates billable hours for you for the next year and beyond.
Customers and referral sources could also get more business and that will make their relationship with you more valuable to them. If you can get a large table or private room in a restaurant that doesn’t have to be fancy but has a good reputation, plan your party and use Avoid for the invitation and RSVP. Wait 7-10 days for responses; last minute invitations may be fine. Spontaneity has its charms, especially at this time of year.
Invite 30 people and wait for 10 to show up. Make five or six sandwiches and host an exclusive cocktail party. If someone asks for beer or wine, leave it. Your party can be held from 6:00 pm to 8:00 pm Most people will have two drinks, the restaurant will tell you how much food to prepare. You’ll probably spend $ 60 per person, which means a table of 10 will cost around $ 750.
You can also consider hosting a party for your Linked-In connections. It would be a wonderful way to introduce your colleagues to each other and billable hours could be created as a result. You might want to make this a pizza, salad, beer, and wine, but so what? It’s a great idea regardless. If you have 100 connections, plan for 25 to appear.
If it’s too late to host a party this year, the cards and stamps used for the December greetings you send out to clients and referral sources are tax deductible. Also, if certain clients have given you a generous number of billable hours, perhaps with an ongoing advance, send a gift to those clients. Please confirm with your company’s HR department that corporate gifts are allowed and if there is a maximum gift amount. The gift will improve the relationship and is also tax deductible.
Thank you for reading,
Kim