NEW YORK -- If you got a rude surprise when you learned how much tax you're paying on your small business, you need to look for ways to lower that bill in the coming years. And you need to start thinking about it now, while there's still plenty of time left in 2001.
Accountants say you can reduce your taxes by doing some strategic planning, which means looking at capital spending and other major aspects of your business from a tax viewpoint. You also need to focus on day-to-day details, such as recordkeeping, to be sure you can capture every possible deduction for business expenses.
Many business owners don't do this, much to their chagrin at tax time.
"If I'm trying to do a return, I can't change a lot -- the results are fairly fixed," said Tom Bargsley, a certified public accountant in Austin, Texas. "But if we can plan now, that's a big factor in lowering that bill."
One of the first things you need to do is familiarize yourself with the tax laws and what kind of deductions you can take. You might start by getting a tax guidebook aimed at small businesses, such as "J.K. Lasser's Tax Deductions for Your Small Business," "CCH Business Owner's Toolkit: Tax Guide 2001" or "Tax Savvy for Small Businesses."
It probably won't hurt to consult a tax professional, either a CPA or a lawyer.
One of the first questions a tax expert will likely ask is whether your business has a retirement plan. They'll ask not only out of concern for your financial future, but because an employer, even the sole proprietor of a business, can take a tax deduction for contributions to a retirement plan.
There are a variety of plans -- profit-sharing; simplified employee pensions, known as SEPs; and savings incentive match plans for employees, known as SIMPLEs. Some of these are available to the self-employed, as are Keogh plans and Individual Retirement Accounts.
The requirements and tax savings differ from one plan to another, and if you are thinking of setting one up, you'll probably need to consult a professional.
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