Smart Business Holiday Spending Can Reduce Your Tax Bill
Did your business do better than expected this year? If so, congratulations! While I don’t encourage frivolous spending to save on taxes (after all, your tax deduction is never more than the actual expense!), there are some ways for you to save money on taxes with smart business holiday spending at the end of the year. I will caveat that I am not a tax expert (always consult with your tax professional before undertaking any tax minimization strategy), so I’m just speaking from my own personal experience with my business. Below are five business holiday spending tips to reduce your net income, which in turn can help you save on your tax bill.
I love sending out holiday cards this time of year to clients, past clients, and key professionals in my network. This isn’t necessarily costly, but it is an expense that will reduce my business net income. More importantly, it keeps me and my business connected to those important people in my life. I believe this builds goodwill and helps me grow my business in subsequent years, which is money well spent.
Client Gifts / Gift Cards
If there are clients or professionals in your network who have been especially helpful in growing your business this year, a gift or gift card can go a long way to showing your appreciation. Just remember that the IRS sets a limit of $25 per person per year (https://www.irs.gov/faqs/small-business-self-employed-other-business/income-expenses/income-expenses-8). I like to send out gift cards when someone refers a new client, so I also use this time of year to load up on gift cards. Bonus: usually companies offer special deals when you purchase a certain dollar amount in gift cards during the holidays, such as discounts or bonus gift cards, which you will receive in addition to the tax deduction.
Speaking of bonuses, if you had a particularly good year, you might want to consider giving a holiday bonus to your employees. This shows you care about them and are thankful for their role in your company’s success. It is also another good way to reduce your net income for tax purposes.
Prepay Big Expenses
If you had a really good year, but you don’t expect next year to be quite as good, then shifting some expenses to the current tax year can yield some tax savings for you. For example, maybe you pay your business insurance monthly. If so, you could pay the annual amount now, then shift it back to a monthly payment when it comes due again next year. You can look through all your expenses and talk to your vendors to see if there are any other expenses you can pay in advance.
Speaking of big expenses, if you are close to needing another business vehicle, then purchasing it and using it before the end of the year could mean big tax savings for your company. You could get a large deduction for first-year depreciation, which will drive down your net income. For more information, read this article: https://www.thebalancesmb.com/section-179-deduction-business-suv-397885.
These are my five ideas for how you can reduce your business net income with some smart business holiday spending as you go into the end of the year. What are some other ideas that you have implemented in your business? Please let us know in the comments section below! If you know a business owner who needs guidance with their business and personal spending, please have them schedule a complimentary consultation to learn more about what we can do to help!