7 tax-saving opportunities knocking now

Jul 13, 2015

This is a post from a member of the Freelancers Union community. If you’re interested in sharing your expertise, your story, or some advice you think will help a fellow freelancer out, feel free to send your blog post to us here.

It’s the midpoint of the year, and for savvy business owners this means tax and financial planning are on the priority list. If you’re thinking that you’re good to go until 2016 because you completed your tax return on time, it’s time to reconsider.

The mid-point of the year is exactly when freelancers and owners of LLCs, S Corps, C Corps, and other business entities should be taking advantage of the tax savings opportunities that are only available now.

While it’s tempting to put planning off until closer to the end of the year, or to wait until next tax season to see how things shake out, this reactive approach can cost you money.

So don’t put off mid-year planning, instead, put aside some time and say “yes” to these potential tax savings:

1. Make estimated tax payments more accurate

Now that we’ve hit the midway point in the year, reviewing your year-to-date and forecasted profit in light of your estimated taxes you is a smart move that can save you money—which you can reinvest back in your business.

Assessing your estimated tax payments to avoid underpayment penalties or overpayments is important to do now because it gives you time to adjust your final two estimated tax payments for 2015 as needed.

2. Evaluate your business entity

Sometimes the way you start a business from a tax perspective, is not the best way to continue as your business evolves.

For example, if your business is not incorporated (or you’re thinking of starting a new business), you may want to consider incorporating it or forming an LLC to shelter you from some financial risk and possibly save money on taxes.

Or, if your business has grown and you’ve added employees or even a partner, you may want to consider a different entity to optimize your tax situation—before the end of the year creeps up on you.

Consulting a CPA who is well-versed in helping small businesses select the correct entity is a wise move to make at mid-year.

3. For S Corp owners: review your salary and distribution amounts

If your business is structured and taxed as an S Corporation, review your salary and distribution payments to make sure they are correct and balanced.

S Corp owners may have errors in what the company pays them as salary vs. distribution. This may cost you in higher taxes or an increased audit risk.

To avoid both, consult a CPA who can help you make any necessary changes.

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4. Plan equipment purchases

Most businesses need equipment on an ongoing basis, from specialized machinery to computers, software, office furniture, vehicles, and other tangible goods.

If you have plans to purchase and put into use any of these goods during the current year you can deduct the full cost from your 2015 taxes, up to $25,000, with a "total equipment purchased for the year" threshold of $200,000.

Take some time now to plan your business equipment needs and make a plan to purchase them leading up to the end of the year.

5. Looking at your finances mid-year means you still have time to meet your goals

Hand in hand with mid-year business planning is taking a closer look at any potential tax savings in your personal finances. Consider if:

There any life-changing events occurring soon such as marriage, the birth of a child, retirement, or a career change.

  • Your income or expenses will substantially increase or decrease in the coming months.
  • You are on track with your savings goals.
  • You are comfortable with your debt load.
  • How your investment portfolio is doing.

These are all areas to review at mid-year to ensure you can reach your goals and not end up with costly surprises once it is too late to take corrective action.

6. Plan for retirement

If you haven’t done so already, set up a retirement plan or reassess your contributions. Contributing to an IRA, Keogh, simplified employee pension (SEP), or other retirement plan is an essential way to secure your future retirement and reduce your taxable income.

The specific rules, contribution limits, and deadlines vary by plan. Enlist the help of a CPA to determine the best retirement option based on your situation.

7. Take charge of your recordkeeping

Keeping accurate and comprehensive accounting and expense records is not only good business practice, it can also ensure you have adequate documentation to claim deductions and provide proof to the IRS if you are ever audited. Plus, good accounting also reduces the time you spend looking for information come year-end.

If you haven’t been keeping track of your business expenses, get caught up now—and if you find the process of day-to-day accounting too much to handle, consider outsourcing it to an accounting professional familiar with freelancers and small businesses.

Don’t delay! Take advantage of the mid-year tax planning window now.

As long as tax and financial planning is an ongoing process, you avoid pitfalls that can cost you time and money.

A mid-year financial review can open up significant opportunities for tax savings and provide you with peace of mind, knowing that you’re on track to end the year in a better position and be in great shape next tax season, too.

Feeling motivated? Get a headstart on tax season with our Ultimate tax guide for freelancers!

Jonathan Medows is a New York City based CPA who specializes in taxes and business issues for consultants across the country. His website, www.cpaforfreelancers.com, has a resource section with how-to articles and information for freelancers.

Jonathan Medows

Jonathan Medows is a NYC-based CPA who specializes in taxes for consultants across the country. His website has a resource section with how-to articles and information for freelancers.