Many businesses took advantage of tax credits, payroll tax deferrals, and government-provided loans to sustain their businesses throughout the pandemic. However, most Black women business owners were unaware of the government stimulus's many resources provided and therefore were disproportionately affected. As a result, they were unable to benefit from tax breaks and minimize tax liabilities.
One strategy that seasoned business owners undergo is to discover measures of protection for their business. And one of those protections is tax planning. For business owners to maximize tax breaks and minimize tax liabilities, tax planning reviews their current personal and business financial situation. Business owners who conduct these reviews tend to meet with their tax preparer or accountant quarterly.
If you have never had a tax planning discussion, here are four questions to ask to reduce your tax bill:
1. What's the impact of the government stimulus on my taxes?
There are some questions that you'll need to answer first. Are you receiving the child tax credit? If you are receiving this credit, you will not receive the full credit on your tax return.
Did your business receive the PPP Loan (Paycheck Protection Program)? Taxes will not be due for forgiven loan amounts. The expenses used for the PPP loan are deductible. If you did not participate in the PPP, you might have taken advantage of the Employee Retention Tax Credit or Families First Coronavirus Relief Act. The government stimulus program will impact your tax situation in the same way.
2. What's the tax impact of working from home?
Who isn't working from home these days! You may be able to deduct for your home office. When speaking with your accountant, provide an overview of the home office, expenses spent to upgrade, and square footage.
3. Are my estimated tax payments correct?
Tax payments are estimated based on the previous year's taxable income, such as earnings from self-employment. Depending on your situation, you could be paying less for estimated tax payments. You ultimately want to pay exactly what you owe, so there are no surprises on your tax return next year.
Small business owners, freelancers, and independent contractors should pay taxes quarterly. They do not have taxes automatically withheld from their paychecks, as regular employees do. The Internal Revenue Service (IRS) requires quarterly estimated tax payments filed by those who have income that is not subject to automatic withholding. The taxpayer then files the usual tax paperwork for the whole year and pays the balance due or requests reimbursement for an overpayment.
4. What can I do now to reduce my tax bill?
Tax bills can be crushing to your bank account. Have your accountant explain them thoroughly to prepare you for any potential tax bills or refunds. Ask your accountant what you can invest or purchase to possibly reduce your tax bill. Here are a couple of items to consider:
Buy capital equipment
Contribute to a 401 (k) or IRA
Set up a college savings fund for kids
Don't get blindsided by the changes in the economy. It's not too late to schedule a tax planning session with your tax preparer or accountant. Your tax preparer can help you avoid penalties and interest and ensure you receive all the deductions and credits you qualify for.
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Linda Diakite Karressy, is the founder of Insight Financial Group, makes accounting fun! She isn’t your stereotypical zero-personality accountant who wears the traditional green shade. She loves breaking down accounting to its lowest denominator so that everyone can grasp it. To keep up with Insight Financial Group, you can follow them on all socials under @insightfinancialgrp.
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