Guides
Tax FAQs

7 Ways To Save Even More Income Taxes

Table of Contents

  • 1. IRA Funding Trick
  • 2. Determine the “Best” Retirement Plan for You
  • 3. Make Your Landlord Pay for Improvements
  • 4. Deduct Home Entertainment Expenses
  • 5. Deduct Holiday Gifts Without Receipts
  • 6. Deduct Your Home Computer
  • 7. Have Your Company Buy You Dinner

1. IRA Funding Trick

If you don’t have enough cash to make a deductible contribution to your IRA by April 15th, here is how you can still take the tax deduction for that tax year. To get started, all you need is an existing IRA.

Begin by having $6,000 distributed to you from your IRA. Once you have the $6,000, immediately deposit it back into your IRA. If you do this before April 15th, this counts as your deductible contribution for the year. The best part of this is that you have 60 days to “make up” the $6,000 withdrawal (and avoid penalties and taxes). To do this, simply deposit a $6,000 “rollback” into the same IRA account within 60 days and you will be able to avoid taxes and penalties on the original $6,000 distribution made to you.

This is a type of short-term loan from your IRA to make this year’s deductible contribution before the April 15th due date; however, you can only do this once in a 12-month period. If you don’t replace the money within 60 days, you may owe income tax and a 10 percent withdrawal penalty if you’re under the age of 59 1/2.

A 2014 Tax Court opinion, Bobrow v. Commissioner, T.C. Memo. 2014-21 held that the limitation applies on an aggregate basis, meaning that an individual could not make an IRA-to-IRA rollover if he or she had made such a rollover involving any of the individual’s IRAs in the preceding 1-year period. The IRS issued a revised regulation regarding this decision, which became effective on January 1, 2015.

The ability of an IRA owner to transfer funds from one IRA trustee directly to another is not affected because such a transfer is not a rollover and, therefore, is not subject to the one-rollover-per-year limitation.

Back to top

2. Determine the “Best” Retirement Plan Option

As a self-employed small business owner, there are several retirement plan options available to you, but understanding which option is most advantageous to you can be confusing. The “best” option for you may depend on whether you have employees and how much you want to save each year.

There are four basic types of plans:

  • Traditional and Roth IRAS
  • Simplified Employee Pension (SEP) Plan and Savings Incentive Match Plan for Employees (SIMPLE)
  • Self-employed 401(k)
  • Qualified and Defined Benefit Plans

To make sure you are getting the most out of your financial future, contact the office to determine your eligibility and to figure out which plan is best for your tax situation.

Back to top

3. Make Your Landlord Pay for Improvements

Instead of paying for leasehold improvements at your place of business, you can ask your landlord to pay for them. In return, you offer to pay your landlord more in rent over the term of the lease. By financing your leasehold improvements this way, both you and your landlord can save money on taxes.

Under the Tax Cuts and Jobs Act of 2017 (i.e., tax reform), qualified leasehold improvement was superseded by qualified improvement property (QIP). Ordinarily, you must deduct the cost of qualified improvements made to your place of business over a 39-year period (similar to that of depreciating real estate); however, up to $1,000,000 in qualified leasehold (as well as restaurant and retail) improvements can be expensed using the Section 179 deduction (subject to certain rules), thanks to tax reform legislation passed in late 2017. Improvements must be interior, that is, roof HVAC systems, façade work and other exterior improvements such as on the roof do not qualify.

Legislative intent of tax reform indicates that Qualified Improvements to Property will be over a 15-year period (vs. 39 years), although the actual law does not specifically state this at present.

The PATH Act changed the definition of qualified property from qualified leasehold improvements to qualified improvement property. The rules regarding qualified improvement property differ from those for qualified leasehold improvement property in that the improvement does not have to be made pursuant to a lease and does not have to be made to a building more than three years old. For tax years 2016 and 2017, the rules still apply for defining qualified leasehold improvements. In addition, the 15-year recovery period for leasehold, retail, and restaurant improvements was made permanent by the PATH Act as well.

Qualified leasehold improvements completed before 2008 were eligible for a special 15-year recovery period. If in the year your lease term ends you move to another location, you can deduct the portion of the improvement cost that you have not previously deducted. This normal scenario won’t save you tax in the earlier years of the lease. Your landlord will have to put up the initial cash for the improvements, but you will cover that over time with increased payments in your rent. Since your landlord will be paying for the improvements, you will save tax early in the lease and your landlord will benefit as well!

At the same time, your landlord will gain depreciation deductions for the cost of the leasehold improvements. When you leave, your landlord will still have the improved property to offer other future tenants. It is a great opportunity for a win-win situation giving you faster access to invested monies.

Back to top

4. Deduct Home Entertainment Expenses

If you host a company picnic or holiday party at your home, then the cost of meals at your home is a deductible expense and you can deduct 100% of your meal expenses. However, under tax reform, and starting in 2018, entertainment-related expenses are no longer deductible.

Prior to tax reform, 50 percent of your business-related entertainment expenses (with some exceptions) were generally deductible.

Back to top

5. Deduct Holiday Gifts Without Receipts

Don’t overlook the deductible benefit of business gifts during the holidays or at any other time of the year. Whether you are a rank-and-file employee, a self-employed individual, or even a shareholder-employee in your own corporation, you can deduct the cost of gifts made to clients and other business associates as a business expense. The law limits your maximum deduction to $25 in value for each recipient for which the gift was purchased with cash.

Back to top

6. Deduct Your Home Computer.

Tax reform legislation passed in 2017 repealed certain itemized deductions on Schedule A, Itemized Deductions for tax years 2018 through 2025, including employee business expense deductions related to home office use. Prior to 2018, If you purchased a computer and used it for work-related purposes as an employee, you were able to deduct the cost as long as you meet certain requirements such as your computer must be used for convenience and as a condition of your employment, for instance, or if you telecommute two days a week and work in the office the other three days.

If you are self-employed, you can take advantage of Section 179 expensing even if you don’t claim the home office deduction. Section 179 allows you to write off new equipment (including computers) in the year it was purchased as long as it is used for business more than 50 percent of the time (subject to certain rules).

Back to top

7. Have Your Company Buy You Dinner

Prior to tax reform, i.e., for tax years before 2018, this expense was 100 percent deductible. Furthermore, per tax reform legislation, this expense is nondeductible after 2025. However, for tax years prior to 2018 the following was allowed:

If you are in a partnership or a shareholder-employee in a regular C or S corporation, and you have to work overtime, your company can, on occasion, provide you with meal money for dinner. The cost of this “fringe benefit” is 50 percent deductible for your company under Section 132 of the Internal Revenue Code and you don’t have to pay personal income tax on the value of the meal.

Your company can pay directly for the meal or can instead, provide you with dinner money. But, in order for this to work, the amount of money you receive for your meal must be reasonable. If the IRS decides that the amount of money you received from your employer was unreasonable, the entire amount will be considered taxable personal income and will not be deductible.

Back to top

Ask a Question

Find comfort in knowing an Expert in accounting is only an email or phone-call away.

We Are Here to Help

We will happily offer you a free consultation to determine how we can best serve you.

Blog

Attestation Services: Compilations, Reviews, and Audits CPAs offer attestation services as unbiased options

frequently asked questions

  • What Is A Virtual CFO & How Can It Transform My Business?
    • a. A Virtual CFO can be a much-needed sounding board, coach, and guide. Outsourced Virtual CFO is generally not just one person, but an experienced team of professionals providing a full-stack Accounting and Finance Department at a fraction of the cost that it would otherwise cost a business to hire even just one full-time CFO internally. The right virtual CFO service team, such as the one at Perpetual CPA, can deliver timely, detailed, comprehensive financial reporting, interpret the financial data, prioritize recommendations, give expert guidance on how to execute those recommendations, and ultimately give a better path to business success.
  • How can a Virtual Accounting Department help small businesses scale and grow?
    • a. A growing number of small businesses are opting to outsource services such as IT, human resources, or accounting. The benefit of a Virtual Accounting Department is that the company can reduce or increase services to accommodate current business needs. Because the service provider has multiple clients they can absorb fluctuations in workflow more easily than the average small/medium business can on its own.

      b. A Virtual Accounting Department can integrate with a company’s own accounting department to create a blended solution or provide a full-stack accounting department, including Accounting Staff, Manager, Controller, and Virtual CFO. By using a Virtual Accounting Department Small business owners don’t have to worry about hiring, training, figuring out compensation, and payroll compliance for the internal accounting team. Also as the business grows and new and more complex accounting and tax issues come up, the outsourced Virtual Accounting Department can provide all the needed expertise to facilitate continued business success.
  • What are the benefits of hiring a CPA firm?
    • a. Certified Public Accountants (CPAs) do a lot more than just crunch numbers and prepare taxes. They provide valuable expertise and strategies to help businesses and individuals achieve their business and financial goals. A CPA firm can help small businesses with management financial reporting, tax compliance, strategic business advice, and much more. Firms like Perpetual CPA, that specialize in helping small and medium-sized businesses achieve growth, can also provide Virtual CFO services, that help the business owners have the foresight into the short-term future cashflows and be able to more successfully navigate their business performance.
  • What are the best strategies for small business growth?
    • a. A business growth strategy is, simply, a plan of how a business gets from where it is today to where it wants to be in the future.

      b. Some of the questions to consider when coming up with a growth strategy are:
      i. Where will the business get new customers from?
      ii. How will the business expand into new markets?
      iii. What new products could the business offer?

      c. In reality, what happens with many small businesses, is that they generally achieve a specific level of business activity or sales and then the business growth trend flattens. In those cases, working with a firm like Perpetual CPA, which provides Virtual CFO services, can help small businesses avoid stagnation. Virtual CFO services, aside from providing timely accounting and tax reporting, can also provide valuable insight into the current performance of the business, as well as, foresight into the future cash flows for the business. Perpetual CPA Virtual CFO team helps small businesses interpret their financial information and come up with business strategies to help improve business performance and achieve growth.
  • What are the best strategies for small business risk management?
    • a. A risk management plan helps a business develop a detailed strategy to deal with certain risks that are particularly important for the businesses’ success.

      b. For many small and medium-sized businesses, the easiest way to develop and implement a business risk management plan is to work with a reputable CPA firm, such as Perpetual CPA. Large corporations invest a lot of resources and time into managing risk, which is a material factor that allows those large corporations to continue to generate billions of dollars in revenue every year. Small businesses, however, almost never manage any business risks, which is the major reason that over half of all the small businesses do not survive for more than 5 years. Generally, small business owners are not experienced corporate business professionals and lack the needed business knowledge, yet they often have to wear many hats while trying to get their businesses off the ground. In those situations, a CPA firm such as Perpetual CPA, can help small businesses better manage tax compliance risks, cash flow, internal controls, business administration, financial reporting, and much more.
  • What is Strategic Advisory and Virtual CFO? / How do Strategic Advisory and Virtual CFO services work?
    • a. When small businesses start spinning wheels, it is a good time to consider hiring a reputable CPA firm, such as Perpetual CPA, which can provide both Strategic Advice and Virtual CFO services.

      b. As a strategic advisor, the CPA firm will work with business management to improve the effectiveness and profitability of the business. They will look holistically at the business and find ways to operate the business more efficiently, increase customers through additional or improved marketing or improve customer touchpoints and service.

      c. As a Virtual CFO, the CPA firm is like a part-time version of a traditional CFO or Chief Financial Officer plus a full Accounting support team. They perform the tasks that in a larger organization would be performed by the CFO, Controller, and Accounting Staff such as preparing and overseeing the budget process, identifying and analyzing current and future trends, and developing strategies for the business growth.
  • How can timely financial visibility and management reporting help with better business decisions and growth?
    • a. A simple way to a successful business is to prioritize the timely financial visibility and management reporting as it means:
      i. Timely financial information and analysis are essential for making informed decisions, evaluating your company’s results, improving financial performance, and ensuring you are on the path to meet your strategic goals.
      ii. Management reporting is a source of business intelligence that helps business leaders make more accurate, data-driven decisions. But, these reports are most useful if they are available timely and the management receives proper interpretation of the business financial information.

free initial 30-minute consultation

    © Perpetual CPA 2023   •   Privacy Policy   •   Disclaimer   •   Accessibility Statement   •   Powered By   Designed by Dot Com Media Moguls