But Some Year-End Strategies Can Pay Dividends Now
Accountants, tax advisors, and financial planners agree: Be mindful of your tax strategy year-round as opposed to once or twice a year, and you’ll ease the pressures of taxes and minimize your tax burden.
That said, there are year-end measures that can reduce your tax bill for this year and put you on a solid footing for the future. Here are a few ideas that you can put to work easily before the end of the year or turn into discussion points with a professional tax specialist.
Consider expert help. Speaking of professional tax specialists, do you have one? There is a price to pay, but unless you are as adept with a calculator and tax law as you are with a paint brush, a professional’s advice could help uncover deductions you might not find on your own. They also allow you to focus your energies on the things you do best, such as landing new projects, and, of course, painting.
Are you a tax DIYer? That’s cool, too. PROs who have a PRO+ account can download all their expenses and billing into Intuit QuickBooks which has a tax prep checklist that can help keep you organized throughout the year. QuickBooks also offers a program that can help you file your taxes. PRO tip: Avoid procrastination. Keep up to date with recording and monitoring your expenses and billing and you’ll minimize stress down the road.
Save those receipts and record your miles. COVID-driven legislation has changed some of the math regarding deductions. For example, business lunches that were previously only deductible up to 50 percent can now be claimed 100 percent. And mileage remains golden — 2021 offers deductions of 56 cents per mile in trips that you rack up between jobsites, for example, or to your Sherwin-Williams store for supplies. Your PRO+ account allows users to save every receipt and invoice you receive from Sherwin-Williams. Register with your rep or sign in to your PRO+ account today.
You want that sprayer, don’t you… Sure you do. You know it will maximize your team’s efficiency and open up the possibilities of new projects in new market segments. And if you buy it or any other equipment purchase before year’s end, you’ll reduce your 2021 tax burden and be entitled to a special federal tax deduction for equipment purchases. Additionally, higher equipment depreciation deductions are now available for new and used equipment purchased in the last four years. Consult a tax professional for details.
Consider a retirement plan. There are several tax-deductible retirement plan options for small businesses such as painting contractors, both for yourself and your employees. Opening a plan and contributing to it in 2021 will reduce your tax hit. Keep in mind that retirement planning of any kind — even for millennials — is always a good idea.
How do you define your business? Are you a sole proprietorship? A partnership? A limited liability company? Should you become one? The answer to these questions can have a big impact on your taxation and deductions. Consult a tax professional for guidance on the best way to structure your business.
Be charitable. Contributions to charities in 2021, both for business owners and individual taxpayers, are subject to higher levels of deductibility since passage of the CARES Act. Consider a contribution before year’s end to take advantage of present levels of deductibility for cash contributions.
Look into options for back payroll taxes. The CARES Act also deferred some payment of Social Security payroll taxes incurred in 2020, but employers will need to square up with half of the payment before the end of 2021, and the other half by the end of 2022. Talk to your tax professional about the impact of these payments and how best to plan for them.
This article is intended to provide an overview of business decisions that could affect taxation for painting contractors. Please consult a tax professional for further direction regarding your business and taxes.