When you own a small business, taxes can constitute a harsh financial blow, which is why it's in your best interest to keep your IRS bill to a minimum. And with the end of the year rapidly approaching, now's the time to get serious about lowering your 2018 taxes. Here are a few steps you can take in the coming weeks that'll help you achieve that goal.
1. Pre-pay some business expenses
There are plenty of expenses that naturally come up in the course of running a business, and while they might eat up a chunk of your funds, they also serve the very important purpose of reducing your taxable income. Therefore, the more expenses you're able to prepay this year, the lower your 2018 tax bill will be.
If you have bills due in January, paying them before the end of December will help reduce your tax burden for the current year -- even though those bills themselves may not be due until 2019. Furthermore, you can get away with prepaying business expenses regardless of whether you do so by check or by credit card. With the former, all you need to do is send out your checks a few days before the end of the year; it doesn't matter if those checks aren't then cashed until 2019. And if you're using a credit card, just make sure to charge those expenses this year, even if your credit card bill itself won't come due until early 2019.
2. Delay some income
Generally speaking, small businesses aren't required to report income until it's received. Therefore, delaying some income to the following year can help you keep your 2018 taxes to a minimum. To do so, simply hold off on invoicing clients until the end of the year, or even wait until the following year to bill some customers. That said, you may not want to go this route with new or unestablished clients; rather, save this strategy for those with a solid history of paying their bills.
3. Invest in new equipment
Whether you've been grappling with aging equipment or want to upgrade to newer technology for your business, now's the right time to make that investment. That's because you can take a 100% depreciation deduction for assets purchased to help your business rather than wait to take that deduction over time. And you know what that means -- a lower tax bill up front.
4. Set up a retirement plan
If your business doesn't have a retirement plan in place, setting one up will not only help you and your employees save for the future but also help lower your taxes at present. If you open a SEP IRA, for example, you can contribute up to 25% of your salary to that account for a maximum of $55,000. Just keep in mind that you'll be required to make the same contribution, in percentage terms, for your employees as well. There's also the SIMPLE IRA, which comes with lower contribution limits but obligates you to fund your employees' accounts to what could potentially be a much lesser degree.
The more tax-savvy you are, the more savings you stand to reap for your business. Make these important moves, and you'll have less of a tax burden to contend with going into the new year.