When you start a new business, you have to make a decision regarding how you will approach your financial management. Two basic methods are available to you: cash basis or accrual basis. Although the two methods clash, there are also see some similarities.
Cash basis is an accounting method that counts income only after cash or a check is received and expenses are not counted until they have been paid. This method is the most popular accounting method among entrepreneurs and small businesses.
Accrual basis is an accounting method that counts income when orders are placed or services are requested, regardless of payment being received. Expenses are counted when your request for good or services is fulfilled.
This article provides some helpful tips on how you can cut your tax bill by making smart depreciation choices, maxing out your retirement contributions and buying the right items. Saving money is critical for everyone, but if you are self-employed or own a small business, these savings can be especially important.
If you follow these tips then you should be able to reduce your tax bill.
- Tip 1 – Reduce taxes, cut taxes, tax refund
- Tip 2 – Reduce taxable income, reduce business profits
- Tip 3 – Hire an accountant
Tip 1 – Reduce taxes, cut taxes, tax refund
For many years, you could reduce your taxes by depreciating the purchase of vehicles or equipment. However, in recent years, this deduction has been severely limited, thanks to the Tax Cuts and Jobs Act passed at the end of 2017. Before making any major purchases for your business, consider if it would be better to wait until when these limitations are likely to be repealed. However, speak with your accountant to know when that could be and to make the final determination.
Tip 2 – Reduce taxable income, reduce business profits
Even if you can no longer reduce your taxes by depreciating items, you may still be able to reduce the amount of tax on profits from your business. You may reduce this amount by contributing as much as possible to a retirement account. You can reduce your taxable business income this way if the retirement plan provides a tax deduction for contributions and defers tax on earnings and contributions. There are also other ways to reduce taxes like deferring income and accelerating deductions, but it’s best you speak with your accountant to ensure you are doing it the right way.
Tip 3 – Hire an accountant
Getting an experienced accountant to help you manage your books and look for deductions you deserve is highly recommended. Our accountants at Motl accounting have identified several deductions for businesses they weren’t aware of. Accountants have the knowledge and experience to analyze your finances and get you the best deductions. So consider hiring a well experienced accountant like us to get the most out of your deductions.
Tax laws are constantly changing based on politics, economic situations and events. Many of these changes present opportunities that you can act on if you know they exist. At Motl Accounting, we constantly take note of the changes in these laws and apply them to help our clients. We also provide our clients with the best advice on cutting their tax bill. So if you’d like us to look at how you are structured and treating all transactions, contact an experienced tax professional here at 847-426-2100.
The pandemic led to a large number of professionals working from home instead of their office space. Many may be wondering how this will affect their taxes and if they’ll get a tax break.
The general thinking could be leaning towards you getting a break as an employee working from home, but that may not be the case. Tax breaks of the sort ended with the 2017 tax cuts with little exemptions. This means employees who don’t get reimbursed for their expenses by their employers can’t claim those expenses the way they used to. It’s more complex If you are self-employed and there are rules to be mindful of. You can still deduct a home office and some other expenses related to working from home, but want to ensure you are following the guidelines. It helps to speak with an accountant to get more clarity, but here is some helpful information:
What Can I Claim On My Taxes Working from Home?
You are not supposed to deduct your expenses when you work from home as an employee if your taxes, social security and medicare are deducted from your paycheck. Prior to the 2017 Tax Cuts and Jobs Act passed by the United States Congress, employees could deduct expenses like mileage, home office supplies, work outfits and more. The IRS now tends to qualify remote employee expenses of that manner as “miscellaneous itemized deductions” and since 2018 itemized deductions can only be taken if they exceed the standardized deductions.
Self employed professionals and business owners can still deduct for their office, meals, mileage supplies, marketing and more. Expenses you get in regards to working from home are tax deductible. It’s important to note that the expenses need to be exclusive to the business’s operations. A space used as an office by day and bedroom any other time would likely not be compliant. The space being used needs to be exclusively used for your business.
Tax Breaks Due to Covid-19?
There aren’t currently any special tax breaks for those working from home due to the pandemic. You can however count on a good accountant to ensure you get any tax breaks related to the pandemic if there are changes in the future.
In conclusion, the changes to the tax laws with regards to working from home may be confusing as time goes on. Having a professional assist you with your finances as an employee or business owner can make a difference. Accountant’s like us here at Motl Accounting are mostly aware of these changes and can help you get the most out of your taxes.
If you need to know more about what you can claim on your taxes, contact a professional at We’ve helped several individuals, families and businesses with getting the most they deserve out of their taxes.
Many individuals are familiar with filling out W-4 forms provided by their employers to file taxes. Business owners, self employed individuals and contractors however don’t fill out traditional W-4 forms. They are professionals who might receive income without taxes taken out right away and are therefore expected to make payments quarterly. According to the IRS, you are expected to make quarterly estimated tax payments if the following apply.
- You expect to owe at least $1,000 in tax for the current tax year after subtracting your withholding and refundable credits.
- You expect your withholding and refundable credits to be less than the smaller of:
- 90% of the tax to be shown on your current year’s tax return, or
- 100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)
Simply put, if you know you are going to owe a good amount of money, it’s beneficial to pay your estimated taxes. Here are a few reasons why.
No one likes penalties and paying your taxes each quarter prevents that. Per the IRS if you owe over $1,000 you could be penalized for underpayment of your taxes. Knowing the exact figure could be challenging and hiring an accountant could help in estimating how much your payments should be. Your accountant should have all the right numbers and processes in place to give a figure to pay that should prevent you from underpaying your taxes.
Paying your taxes quarterly let’s you avoid the potential surprise of a larger tax bill during tax season. Not paying could lead to having a large and unexpected bill at tax season. Paying your taxes quarterly can give you peace of mind knowing you aren’t likely to get an unexpected bill. This might be a task to deal with every quarter due to the nature of your business and how busy you are. If that’s the case, consider hiring an accountant who can assist you. For all you know, the cost of paying penalties could be more than what an accountant might charge to help you.
Paying your estimated taxes each quarter should give a good overview of your books and less stress in managing your accounting. This is where a bookkeeper comes in handy as they can provide insights on your accounting through the year. Tax season is less of a headache when you’ve been managing your books and making quarterly payments throughout the year.
In conclusion, the benefits to paying your estimated quarterly taxes can make life easier and provide you peace of mind. Quarterly taxes are typically due on April 15, June 15, September 15, and January 15, for the current calendar year. Most accountants and bookkeepers are aware of these dates and should work with you to get your payments in on time as needed.
Want to know more about how accountants and bookkeepers can help with your taxes and grow your business? Contact one of our professionals here at Motl Accounting. We assist businesses and individuals with their accounting needs and look forward to assisting you.