Welcome to the end of 2022! If you’ve made more money, then tax planning is the best thing you can do to ensure you see as much of that money as possible.
The first thing you can do to reduce taxes is to know what they are. Paar Melis plans taxes all throughout the year. The first tax estimate comes through for our clients as soon as the previous year’s taxes are finished in March and April. Then During June, we forecast the rest of the year (the next 6 months) off the first half of the year. In other words, understand your taxes early to avoid both overpayments on estimates (which leaves you waiting on your refund) and a large tax bill at the end of the year.
The second, easiest way to save money on taxes is to fund a retirement account. This is the single best tax deduction. 401k contributions are tax deductible. If you spend $10,000 on a 401k contribution, you will get around $2500 back. Max out your retirement accounts. See our Blog for current retirement contribution rates (https://paarmelis.com/retirement-accounts-for-shop-owners/)
Buying equipment; This is something that can help reduce tax bills if you can answer 3 questions favorably. The first question is will it help your business make money? This is always something to ask before considering how it could reduce your taxes. If you buy something just for the sake of reducing your tax bill, you’re only putting yourself out of money. If your answer is yes then ask yourself; will it make my technicians’ lives easier? If this answer is yes, it is highly likely that this will also make you more money and it will certainly make your life easier as well. The third question is were you already going to spend money on this? If so, moving the timeline up to benefit on your taxes can be very helpful. For more information on this, listen to Episode 21 of Hunt’s Podcast “Business by the Numbers” (https://paarmelis.com/business-by-the-numbers/)
End of year bonuses for your team; Make sure they get paid out during the calendar year. Giving your employees extra money on their paycheck is the easiest way and will be taxed lower than a separate bonus. Gift cards are also tax deductible for you to give and won’t be taxed for the person receiving them. End of year Christmas or holiday parties are also tax deductible and great for morale building. For a few more details and ideas about End of Year Bonuses, check out our Blog (https://paarmelis.com/considering-holiday-or-year-end-bonuses/)
Entity selection; are you a C-Corp, S-Corp, LLC? The underlying question is; are you being taxed correctly for your current setup? Entity selection is a great way to save tax money and have legal protection. Adjusting payroll and draws goes hand in hand with entity selection. S-Corps shouldn’t be taking too much out on payroll because it will make you pay too much in payroll taxes and you won’t get the qualified income deduction that comes with being an S-Corporation. For more information on Entity selection, check out episode 17: “S-Corp Owners Distributions and Pay” or episode 20: “Entity Choices – Taxation and Legal Protection” here: paarmelis.com/business-by-the-numbers.
While some of these are most helpful when done throughout the year, right now is and always will be the best time to check in with your financial situation!
Questions? Reach out to us at: info@paarmelis.com.
