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Weekly Tax Tips for Business People #3

Updated: Jun 22, 2023

1) Consider switching from the accrual method to the cash method of accounting if you meet the qualifications!

Under the cash method, you generally report income to the IRS in the year you receive payment from customers. Under the accrual method, you report income when a sale is made to a customer regardless of when the bill is paid. Most business owners prefer the simpler cash method.

2) Hire your children to work in your business!

Wages paid will be deductible by your company and taxable to the family member. Your child's earning will probably fall in a lower tax bracket than yours. Payroll taxes apply to such wages; however, if your business is a proprietorship or family partnership, they do not apply to wages paid to your children under 18. Compensation paid has to be a reason - able for the services performed.

3) Never use the Internal Revenue Service as your banker!

When cash flow is tight, you may be tempted to pay your suppliers first and payroll taxes to the IRS last. The IRS will take steps to minimize the liability as quickly as possible. Pay the IRS first. You absolutely cannot, contact your local IRS office before they contact you.

4) Keep good records for all business travel, meal, and entertainment expenses!

Travel that you do in conjunction with your business is deductible, but business meal and entertainment expenses are generally only partially deductible.

5) Review your employee benefits package!

Fringe benefits can help you attract and retain good employees and cut your taxes too.



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