7 Useful Tax Tips for Business Investors

Web development companyImmediately after the yearly toil of filing a tax return, many of us will make the same pledge to ourselves that we make every year. “Next year will be different”, we will be organised throughout and won’t need to go through the same rigmarole in one long slog. But more often than not, we arrive at the same place, surrounded by receipts with an ominous feeling of déjà vu.

Here are 7 tips for business investors to stay one step ahead:

Keep Organized

Organization is key. But often federal tax forms can seem deliberately obtuse. Employee wages, contractor payments, medical, rent, health care and attorney proceeds can all muddy the water.

Smart tax forms might just be the lifeline you’ve been looking for. Used in conjunction with software like QuickBooks, an accounting software package, smart tax forms take the sting out of filling in your forms and streamline the process endlessly.

Capital Allowances

It quite literally pays to be informed as what can be deemed legally a tax-deductible expense in the provision of certain assets. Capital allowances or tax depreciation allows the taxpayer to deduct the cost of an asset over a period of time (usually several years) against their annual taxable income.

Eligible assets vary depending on region but will always relate to an asset that has a determinable useful lifespan and one that is used in the business’s income generating activities. Normally this would include plant and machinery, fixtures and fittings and vehicles. Find out your qualifying tax depreciation assets to take advantage of the full entitlement and the tax relief they offer.

Methods of Withdrawal

There’s more than one way to take money out of your business. Some are more tax-efficient than others.

Dividends – the tax has already been paid on dividends, they are taken from after-tax profits and therefore shareholders receive a tax break. If dividends meet several statutory conditions, they can be taxed at 20%, if not they are, in general, taxed as ordinary income rates.

Salary or owner’s draw – a monthly pay packet you can withdraw that resembles a wage from an employer.

Company paid benefits – have your company cover your health insurance for you and your family. Pensions and retirement plan contributions can be made on a before-tax basis.

Tax Deferred Programs

Whenever a stock is bought or sold, you are liable to capital gains tax. If these purchases are made through a tax-deferred account, large sums of money can be saved.

The funds are not taxed until you withdraw them from the tax deferred program. These are useful vehicles to exploit especially if the withdrawal takes place after retirement when earnings are likely to be lower and the tax bracket as a result.

Bide Your Time

Long-term capital gains are taxed at a much lower rate than income tax, for example. If you hold on to your stocks for in excess of a year, they will qualify as long-term capital gains and not taxed as ordinary income.

Combine Wins and Losses

Capital losses can be offset against capital gains and therefore if you are celebrating a successful investment, it can be a good idea to marry that with a sales loss in the same financial year. In a particularly poor year, an amount of your loss can be carried over to future years.

Give to Charity

In addition to contributing to a feeling of social conscience and doing some good in the world, charitable donations can provide tax deductions. Refer to the Tax Cuts and Jobs act to determine eligibility.

Taxes are an evolving animal and can have a huge impact on your bottom line. Given the complex nature of these rules, it’s important to check your region’s regulations and the use of a financial advisor is always recommended.

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