Taxes can be the bane of a small business’s existence; however, taxes must be managed in order to ensure its success.

Small business owners can take steps to lower the amount they owe come tax season by taking steps such as increasing home office deductions, deferring income and optimizing retirement plans. Here are a few strategies they may want to try: maximizing home office deductions and deferring income as well as optimizing retirement plans.

1. Don’t Wait for the End of the Year

As a small business owner, you wear multiple hats: marketing, staff management and product development are just a few essential tasks you juggle daily. Add tax planning into this mix and you could face added pressure resulting from errors made during filings or payments which lead to expensive penalties or interest charges.

So it is wise to approach business tax planning on an ongoing basis rather than waiting until the end of your fiscal year to make plans. Doing so will allow you to take full advantage of eligible deductions while maintaining accurate accounting records.

As well, using cash basis accounting (which recognizes income when received and expenses when paid) makes it easy to identify and implement tax-saving strategies. For instance, entrepreneurs who rely on client-based revenue models by sending invoices out in December but awaiting payment until January can defer income until next year in order to reduce tax liabilities.

2. Don’t Make Nonessential Purchases

One of the biggest mistakes small business owners make is spending money they could have saved on taxes by making unnecessary purchases. This wasteful spending can prevent startups from expanding and may limit funds available for hiring employees and creating marketing initiatives.

Tracking expenses using accounting software or spreadsheet (or even just a notebook if necessary) is one way to avoid unnecessary purchases and gain a full view of your business finances throughout the year, not just at tax time.

One way to reduce tax liabilities and save on taxes is hiring family members as employees of your business; the IRS offers several avenues that enable this. These include deductibility of wages and benefits as well as qualified business income deductions available to certain types of pass-through entities.

3. Defer Income to Next Year

Numerous small businesses use the cash method of accounting, which recognizes income as soon as it’s earned and expenses when paid. This allows businesses to alter taxable income between years; for instance if tax rates increase next year it might make sense to defer some income by sending invoices before December’s end and delaying payment until January.

Accelerating deductions in the current year to reduce your tax burden may include contributing to retirement accounts or giving employees end-of-year bonuses; to do this properly you should consult with a tax advisor. Another tax planning tip would be keeping business and personal expenses separate as the IRS can identify any intermingling between personal and professional expenditures resulting in audit or penalties; it’s therefore advisable that business expenses are kept separate using dedicated business bank accounts and credit cards.

4. Write Off New Purchases and Offload Old Equipment

When purchasing costly equipment during the year, such as high-grade lighting systems or store security cameras, small businesses can take advantage of section 179 tax deductions to write off its entire purchase price and lower their taxes and increase profitability. It can help them meet expenses that might otherwise prove too costly.

If your business operates on the cash basis, you have the ability to defer income until next year when taxes may be less. By using this accounting method, revenue claims may be postponed until when your taxes may be more affordable.

If you plan to hire employees, it is wise to invest in a payroll app or service such as Gusto, ClockedIn or Homebase to manage employee records and payroll. Doing so helps ensure compliance with employment laws while minimizing penalties and tax debt come filing time. Furthermore, don’t forget your quarterly estimated taxes due as failure could incur stiff fines and penalties!

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