6 Year-End Tax Tips That Will Save Your Small Business Money

6 Year-End Tax Tips That Will Save Your Small Business Money

As the end of the year draws near, it’s time to start thinking about your tax strategy. If you’re a small business owner, there are a few things you can do to reduce your tax bill and maximize your deductions. Planning ahead and doing some year-end housekeeping can help you make the most of any tax break that your business qualifies for. We have identified six smart tax moves to consider before the clock strikes midnight on December 31st.

 

Write Off Bad Debt

The IRS allows you to write off bad (un-collectible) debts before the end of the year and deduct those that are unpaid from your taxable business income. By writing off this debt, you can reduce your company’s tax burden for the current tax year.

Note, that if the customer ends up paying their invoice in the future, you will need to reverse  the write-off and declare the payment as income. It’s best to discuss this with your tax advisor to ensure the process is handled properly.

 

Stock Up

At the end of the fiscal year, businesses can reduce their taxable income by purchasing business equipment, supplies and other assets that will be used in the coming year. If your business is in a good financial position, replenishing office supplies or stocking up on inventory, could give you a larger deduction.

 

Prepay Expenses

Businesses can choose to prepay for services they will use in the coming year. For example, insurance coverage, subscription services, business rent, association dues and other fixed expenses can be paid in advance, reducing your businesses taxable income for the year.

 

Defer Income

Small businesses typically use the cash method of accounting, meaning a company recognizes income when cash actually changes hands. This method allows for the option of taking income this year or next year. If you anticipate being in a lower tax bracket next year, you might want to defer income to take advantage of the lower tax rate. Waiting until close to the end of the year to invoice clients will defer income to the next year and lower your current tax bill.

 

401(k) Plan for Employees

Setting up or contributing to an employee retirement account can reduce your business’s taxable income. Business owners can claim a tax credit for the cost of setting up and administering a 401(k) plan. The potential tax savings are usually more than enough to cover the cost of setting up and funding the plan.

 

Employee Bonuses

Many businesses give end of the year bonuses to their employees. These not only serve as extra incentive for employees, but they are also commonly tax-deductible for businesses that operate as corporations. You can deduct the cost of any bonuses paid to employees, if the bonus was given as additional compensation for services, not as a business gift – decreasing your overall tax obligation.

 

Now is the time to start planning your end of the year tax strategy. Don’t miss out on the opportunity to reduce your business’s taxable income and keep more of your hard-earned profits. Taking advantage of these year-end tax planning strategies will aid in minimizing your taxes and help make next tax season a little less taxing.

The small business tax professionals at Motl Accounting are here to ensure that your business is taking full advantage of deductions, write-offs and other tax benefits to end the year right.

What Every American Expat Needs to Know About Paying Taxes

What Every American Expat Needs to Know About Paying Taxes

As a U.S. citizen living abroad, you may be wondering if you are still required to file taxes. The answer is YES. All U.S. citizens are required to file tax returns with the IRS and report 100% of their worldwide income every year. In this blog, we provide an overview of your filing obligations as a U.S. expat and discuss tax exclusions and credits that can reduce your U.S. tax liability.

The United States is one of only two countries that follows a citizenship-based tax system. This means that all citizens of the U.S. are taxed under the same personal tax system, regardless of whether they live in the U.S. or abroad. The only way to stop having to file, and for some expats pay, U.S. taxes is to renounce your U.S. citizenship.

With that said, paying taxes twice on the same income is a common concern for U.S. citizens working abroad. Luckily, expats can qualify for special credits, exemptions and deductions, allowing them to avoid double taxation on their annual U.S. tax return.

Foreign Earned Income Exclusion

One of the most valuable exemptions for expats is the Foreign Earned Income Exclusion(FEIE). For tax year 2022, FEIE allows expats to exclude up to $112,000 of their foreign earned income from their U.S. taxable income. This exclusion can be a significant tax break for expats and can help to reduce their overall tax liability.

Taxpayers qualify for this exemption in one of two ways:

Bona fide residence test – You must reside in a country for the entirety of a tax year, January 1st to December 31st.

Physical presence test – You must live in a foreign country for a full 330 days within a 12-month period.

Foreign Tax Credit

Another tax saving alternative for American expats is the Foreign Tax Credit (FTC). The Foreign Tax Credit allows expats to credit up to $300, $600 if filing jointly, of foreign taxes paid against their U.S. tax liability. This credit can help to offset some of the tax burden for expats who are paying taxes in both the U.S. and another country.

Generally, the following four tests must be met for any foreign tax to qualify for the credit:

You can’t claim both the Foreign Earned Income Exclusion and the Foreign Tax Credit against the same income. You must choose one or the other. Work with your expat tax advisor to determine which one is most beneficial for you to claim. 

Foreign Housing Exclusion

The Foreign Housing Exclusion allows U.S. taxpayers living abroad to write off overseas expenses associated with housing costs from their gross income on their U.S. tax return. This expat-friendly tax deduction can be used together with the Foreign Earned Income Exclusion. 

Just like the FEIE, taxpayers must qualify under the bona fide residence test or the physical presence test. 

If you qualify for the Foreign Housing Exclusion, the following expenses can usually be excluded on your U.S. tax return:

    • Rent in a foreign country
    • Utilities minus your phone, TV and internet
    • Homeowner’s or renter’s insurance
    • Property or leasing fees
    • Furniture and parking rentals
    • Rental repairs 

Calculating the amount that can be excluded under the Foreign Housing Exclusion is complicated. Work with a professional expat tax advisor to make sure you are excluding the maximum amount allowed. 

If you are an American expat, it is important to understand your tax responsibilities. The good news is that there are several resources available to help you navigate the complex world of international taxation. At Motl Accounting, we have extensive experience helping Americans living and working abroad meet their tax obligations. We can provide you with all the information you need to file your taxes accurately and on time. 

We are here to help make this process as easy as possible so you can focus on living your best life overseas. Contact us today!

Source: IRS.gov

5 Strategies to Help Small Businesses Cope with Inflation

5 Strategies to Help Small Businesses Cope with Inflation

Small businesses are the lifeblood of the American economy. They create jobs and drive innovation, however, inflation hitting a 40-year record high in June is having a significant impact on them. Prices for goods and services have been going up, while profits have been staying flat or even declining, making it increasingly difficult for small businesses to stay afloat. A recent survey by the National Federation of Independent Businesses (NFIB) found that 37% of small business owners reported that inflation was their single most important problem in operating their business. The good news is that there are steps business owners can take that may help your company weather the storm. Consider using these strategies to ease the effect of inflation on your small business. With inflation on the rise, small businesses need to take steps to protect their bottom line. Discover five strategies that can help ease the effect of inflation on your small business. 

1. Cut Expenses Where Possible

Take a close look at your business and see where you can reduce costs. There may be unnecessary products or services that you are paying for that aren’t being used or alternative options that are less expensive. Consider switching to a hybrid or fully remote office model to reduce costs on office space. You can also try and negotiate better deals with suppliers by preordering materials or buying in bulk. 

2. Diversify Your Revenue Streams

Look into other avenues to generate revenue for your business. Diversifying your revenue streams helps keep your cash flow moving. When one part of your business takes a hit, another part can pick up the slack. Consider entering the ecommerce space or offering a subscription service. 

3. Automate and Streamline Processes

With climbing labor costs, one of the best ways to cut expenses is to automate as much of your everyday labor as possible. From customer service to social media, there are many software tools that can help automate tedious tasks. Automation enhances your efficiency while cutting down on mistakes, saving time for everyone involved.

4. Rework Your Pricing

Raising prices is never an ideal situation, however, it may be helpful in tackling the effect inflation is having on your business. Avoid a dramatic across-the-board price increase. Instead, analyze specific problem areas and raise prices accordingly. Transparency is key. Customers will accept a higher price on your goods or services and remain loyal customers if you are up-front with them about what’s going on. 

5. Revisit Product Offerings

To make your business more profitable, you need to focus on products and services with strong demand and healthy margins. Consider eliminating poor performing products from your portfolio so you can put more time towards goods and services that make your business money.

Inflation can be a challenge for any business, but especially small businesses. However, there are steps you can take to help mitigate the effects of inflation and maintain your profitability.

Don’t let inflation get you down. Motl Accounting can help you develop a plan to manage inflation and keep your business thriving. Contact us today for help staying ahead of the curve.

5 Things to Consider When Choosing an Accountant

5 Things to Consider When Choosing an Accountant

Accountants aren’t just for big companies. Hiring an accountant for your small business can provide valuable insight about your company’s financial position helping you make more informed decisions about how to grow your business.  A good accountant can be your company’s financial partner for life, so when choosing an accountant there are many factors to consider.

Know Your Needs

The first step in choosing an accountant is to identify what you want the accountant to do for you. Are you looking for someone to handle bookkeeping and financial services or help you prepare and file your taxes? Are you needing day-to-day accounting or just someone who will work for you periodically? Understanding the responsibilities and work you need help with, and how often, is an important step toward finding the right accountant.

Experience

Make sure to check their qualifications. It may be beneficial to look for a financial professional who has experience working in your industry so you can be sure the accountant has a real understanding of what your business is about. The right background will be especially beneficial for tax preparation. 

Check Fees

Ask about fees upfront as this can potentially save you thousands of dollars. Some accounting firms charge by the hour whereas others work on a monthly retainer. Determine your needs and decide on an accountant that fits into your business’s budget.
 

Accessibility

A great accountant is your financial advisor all year round, not just at tax time. They are there to support you and your business whenever needed. Find out if you will work directly with the accountant or if other employees will handle your books. It’s also important to know from who and how quickly you can expect a response to inquiries.

Business Growth

The best accountants will share ideas about processes that could be implemented to help your business succeed. Any accountant will let you know about potential issues, but a great accountant will recommend when it’s a smart time to open another location, hire an employee or purchase new equipment. Be sure the financial professional you choose will ultimately support, contribute and guide your business growth. 

The Bottom Line

Choosing an accountant is one of the most important decisions you will make for your business. After all, they can play a pivotal role in its success or failure. A good accountant will help you achieve your goals and set your business up for long-term success. By taking the time to research different accountants and asking the right questions, you can feel confident that you will make the best decision for your business.

Let’s Work Together! If you’re looking for a corporate accountant in the Chicagoland area, Motl Accounting has the expertise you need.

Small Business Payroll: Which Processing Method is Right for You?

Small Business Payroll: Which Processing Method is Right for You?

Are you a small business owner who is overwhelmed by payroll tasks? If so, you are not alone. Payroll can be complicated and time-consuming, especially for business owners who are already busy enough. There are still those that like a challenge and prefer to process payroll themselves, but fortunately, there are solutions available for those that would like a process that is a little bit easier. We have highlighted some of the options available to small business owners when it comes to payroll and provided tips for making the process as smooth and stress-free as possible. So, if you’re ready to learn more about payroll for small businesses, keep reading!

Process Payroll Yourself

For the tax savvy business owner, the DIY approach to paying your employees may be the right method for you. But given all the payroll mistakes you can make and fines that will result, don’t dive in unless you are completely comfortable with everything- from what taxes should look like as well as how much money is owed per employee.

Follow these steps:

1. All employees complete a W-4 form

When you hire a new employee, it’s important to file Form W-4 with their wages. This form documents the filing status and personal allowances of your workers so that taxes can be assessed accordingly.

2. Employer Identification Numbers

The IRS requires that every business have an Employer Identification Number (EIN), which is used by the agency to identify any person or company paying employees.

3. Payroll Schedule

Once you have your EIN you need to add three important dates to your calendar: employee pay dates, tax payment due dates, and tax filing deadlines.

4. Calculate and Withhold Income Taxes

Use the IRS Withholding Calculator and your state’s resource to determine which federal and state taxes to withhold from your employees’ pay. You must also keep track of both the employee and employer portion of taxes as you go.

5. Pay Payroll Taxes

When it’s time to pay taxes, you need to submit your federal, state, and local tax deposits according to your schedule.

6. File Tax Forms & Employee W-2s

Send in your employer’s federal tax return quarterly and state or local returns as applicable. Prepare your annual filings and W-2s at year-end.

Takeaway : The DIY approach to doing your company’s payroll is less expensive, but you open your business up to risky mistakes and costly fines.

Use a Payroll Service

Payroll services are the answer for any small business owner who has found themselves bogged down by payroll paperwork. These professionals take care of everything from paying employees to processing taxes – allowing you to get back to focusing on things that make your business money.

Like the DIY approach, all employees must complete a Form W-4 and your business must have an Employer Identification Number (EIN).

Next steps:

1. Choose a Payroll Provider

Payroll providers automatically process payroll calculations, payroll tax statements, year-end taxes and more for your company. There are multiple factors to consider when choosing a payroll service, such as features, ease of use, cost and support.

2. Add Your Employees

Add your employee’s information – name, address, Social Security number and tax withholding information.

3. Track & Import Hours Worked

Employers are required by The U.S. Department of Labor to keep track of wage records for up to two years.

4. Process Payroll

Run payroll with the click of a button

5. Track Tax Payments and Filings

The IRS requires tax forms to be kept for three years. All required information is kept and available through your payroll provider.

Takeaway: Although a payroll service is more expensive than handling payroll on your own, payroll services perform a variety of payroll-related tasks for you, greatly reducing risk and the time it takes to run your payroll.

Hire an Accountant

For those that are not interested in taking on the burden of doing their own taxes or using a payroll service, hiring an accountant may be the right fit for you and your business.

1. Choose an Accountant

This is not a decision to be taken lightly. Your accountant will become deeply involved in the operation of your business. Do your research and find someone you trust.

2. They do the rest!

Takeaway: Hiring an accountant is the most expensive option, but it eliminates risk and ensures you are compliant with federal, state and local payroll, wage and tax laws.

If you’re a small business owner, it’s important to understand that there are different methods available to process your payroll. Finding the right fit for your business is imperative. Take the time to research your options, so you can ensure that your business will have a smooth and easy experience when it comes to paying its employees.

No matter your size, we can custom tailor a payroll solution for you. Contact us TODAY for an initial payroll services strategy session.