Year End “To-Do’s” for the Self Employed
As the end of the year approaches, a self-employed business person should consider the following:
- Should I take advantage of a qualified tax deduction through my business?
- Are my “books” in order?
- Is my tax structure the best for my level of revenues?
- How will I make more money in the coming year?
1) Should I take advantage of a qualified tax deduction through my business?
One of the benefits of having your own business is that the tax code allows you to put more money away for retirement than an individual can on his/her own. This dynamic actually provides 2 benefits: 1) you can save more on your taxes that year and 2) you can build up a nest egg for your retirement faster. Self-employed persons can set up one of a few types of retirement accounts:
1) Sep-IRA
2) Simple-IRA
3) Individual (Solo) 401K/profit sharing
These plans allow you to invest anywhere from 0 – $59,000 a year towards your retirement and tax savings.[1] Assuming a 20% tax bracket, a $10,000 investment for your retirement could save you and additional $2,000 in taxes.
2) Are my “books” in order?
As business owners we tend to get busy with the business and sometimes overlook the daily chores such as bookkeeping until it piles up big. This is a great time to organize your expenses and income in order to 1) have a better idea and plan for taxes, 2) look for strategies to minimize taxes and 3) do some business planning for the following year.
3) Is my tax structure the best for my level of revenues?
Many businesses start as “sole-proprietors.” This is a simple way to start a business going. However, as revenues or liabilities grow, one should consider other business structures that might 1) save you some taxes and 2) minimize your liabilities.
4) How will I make more money in the coming year?
A reason to be in business is to make money and hopefully grow that every year. By taking a look back, one can see 1) what has worked, 2) what needs improvement and 3) how can it be improved. This is part of business planning. The end of the year is a great time to do business planning whether on your own or with a business planner in order to increase the odds of starting the new year strong.
[1] The actual amount varies per person depending on several factors including age, revenues, business structure and aggregate contributions to other qualified plans. You should always seek the advice of a financial advisor when determining which plan or investment makes sense for you.
Advisory services are offered through Allgen Financial Advisors, Inc., a registered investment advisor.
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