Making It Personal
Making It PersonalAuthor: Keith Huggett
When you run a sole proprietorship, your business' taxes are your personal taxes. With this in mind, end-of-the-year tax planning is especially important. Here are some tips that can help you minimize your tax bill:
- Compile documentation on your home office and vehicle usage. The IRS lets you write off home office and vehicle expenses, but you will need to clearly identify which portion of each gets used for business purposes and which for personal purposes.
- Set money aside for taxes. While you should have been paying estimated tax payments, you should still be ready in case you owe more money. Keep in mind that your income will also be subject to self-employment tax, which can easily add up to thousands of dollars.
- Accelerate earning money. Right now, 2012 has lower tax rates than 2013, although this could change if Congress extends the Bush tax cuts. With this in mind, 2012 could be a good year to earn income. If it makes sense for you, you might want to shift income to this year and expenses to next year.
- Get your books in order. The accountant or tax preparer who will compile the returns for you and your sole proprietorship will need detailed information on your income and expenses so that he or she can accurately reflect your business' operations.
- Make capital expenditures. The Section 179 deduction is a generous $139,000 this year and lets you choose to expense instead of depreciate major capital purchases. Since it will go down significantly in the 2013 tax year unless the tax code is changed, this year is an excellent time to buy large items for your business to offset profits. If you combine the Section 179 strategy with shifting income to 2012, you could end up creating tax-free profits.
