You know what time of year it is, micro-businesses! You've faithfully kept your business records, and have estimated and paid your quarterly taxes throughout the year. But December is coming up, and that means it's time to close out 2013. Here's how to cut your tax burden before the apple drops, and make sure you're paying a fair amount of taxes.
Yes, you read that right. A simplified way of looking at your tax payment is that it is heavily based on your incoming payments minus your qualified expenses, so one way to reduce your tax payment is by purchasing your business' needs before December. Make sure your office, product line or showroom is well-stocked and functional. Need that new laptop? Get it now! Considering a renovation of your home office? December is the perfect time of year to find great deals. In addition, the holiday season brings an uptick in sales, coupon codes and specials that are meant to entice gift-givers, but that doesn't mean you can't buy for your business!
A similar practice is to donate cash to your favorite causes. A limited amount of qualified donations work the same way as an expense against your profit as described above. Be sure to make sure your chosen charity meets some specific criteria before you donate. Another good practice may be to make your donation into a network-building opportunity by selecting a charity that is not only close to your own heart, but also related to your business in some way. You never know what connections you might make!
Consider Taking the Home Office Deduction
Ah, the dreaded home office deduction. In all my years as a home-based business, I've read the cryptic advice that the home office deduction is a surefire trigger for an audit just about everywhere. And, while no one wants to be subject to the time and stress that an audit entails, the deduction can be significant. Think of it this way: I live in a huge, drafty Victorian-era home in the (freezing) north. During the day, my heat is cranked up because I'm here, working. Were I to be at a traditional job, this wouldn't be the case, and this expense wouldn't even exist during the day. What I am saying is that working in your home costs you money. The home office deduction is designed to take ease a little of that burden. Take your concerns to a local tax professional, and see what their opinion is. It may be worth your time.
Did you know that donations to a personal retirement account render tax advantages? Seems to me that December is the perfect time to start or bolster your retirement account, business owner! Be sure to check with your account manager on relevant maximums and limitations before you write that check, though.
The advantages and disadvantages of a home-based business are about balanced, but the tax burden is heavy. Business owners can attempt to even out the playing field by carefully managing their expenses, especially around November and December, as we approach the end of the tax year.
*Caveat- The author is not a tax consultant. For tax help specific to your situation, hire a licensed tax consultant.