In a perfect world,we entrepreneurs would pay our estimated state and federal taxes, including Social Security and Medicare levies, on a quarterly basis. In reality, it’s easy to overlook these payments, especially if your cash flow is hard to predict and things get tight.
Since quarterly taxes for the final three months of 2016 are due on Jan. 15, take the time to make sure you’ve properly deducted the levies and that you’re accounting for any late fees and penalties the IRS may impose if you missed a payment.
Working with a payroll company can also help you simplify things. “Let’s say you were supposed to pay $10,000 throughout the year,” said Burton. “You can go to the payroll provider, have them deduct the $10,000 and pay it to the IRS as additional withholding.”
Set up your retirement plan
Once you’ve determined what you owe in taxes, think about how you can save.
While most folks may know that a 401(k) or an IRA will allow you to save on a tax-deferred basis, did you know that you can also save on taxes by setting up a retirement plan?
Be aware of the differences between these three retirement plans. If you are your own boss with a SIMPLE IRA, you can save up to $12,500, plus a catch-up contribution of $3,000 if you’re 50 and older. You can also contribute either a 2 percent fixed contribution or a 3 percent match.
You can save even more aggressively in a SEP IRA and a solo 401(k).
Because you’re the employer and the employee of your small business, you can save up to the overall limit for defined contribution plans: 25 percent of your earnings, up to $53,000 in 2016, plus a $6,000 for catch-up contribution if you’re 50 and older.
That $53,000 includes the $18,000 maximum you can defer into a plan as an employee, as well as other employer contributions and matches.
Talk to your advisor or your accountant to determine which of these plans is right for your business.
Accelerate or defer
Depending on how your clients pay, you may be able to defer receipt of income this year, which could help you save on taxes.