Corporate Tax Strategies: What Works and What Doesn’t

It’s mid-December and time for solopreneurs and all freelancers to start thinking about how much money we’re handing over to the helmsman this year. Tax planning usually takes center stage at the end of the year, but be advised that it’s not always a good idea to dwell on taxes. Michael Hanley, a chartered accountant and small business tax specialist in New York City, recommends that you stop and carefully consider the impact that aggressive tax strategies would have on your financial circumstances.

Hanley warns small business owners and solopreneurs against overspending on business expenses to lower the tax burden because deductions aren’t a dollar-for-dollar benefit. Each euro written off as a deduction brings an average of only 30 cents in tax savings (depending on the tax class and legal form of the company). If you have an expensive item to buy and anticipate that earnings will be about the same this year and next year, then buy when you can get the best price for the item, either this year or next . Your savings could be worth more than the deduction.

Hanley also addresses what appears to be a common tactic of zeroing his business bank account by December 31. Paying off business expenses, adding to your retirement account, or buying business equipment or supplies could all make the zero bank account balance tactic work. If you pay yourself a bonus, collect a shareholder distribution if your company is a legal entity, repay your bank line of credit, or pay off business credit cards, you will not receive legitimate deductions.

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Continuing professional development is tax deductible. So if you have funds and a potentially useful workshop or symposium is offered late in the year or early in the new year, register and pay on or before December 31st. Adding a certification to your resume can make your services appear more valuable to clients and may also justify an increase in your hourly rate and project fee.

You might also consider hosting a Christmas party for clients, potential clients, referral sources, and select business associates (so no one to steal a client!). The party expenses are tax deductible and best of all, it could turn out to be a networking bonanza that will provide you with billable hours for the year to come and beyond.

Customers and referral sources could also do more business, and that will make their relationship with you more valuable to them. If you can snag a large table or private room at a restaurant that doesn’t have to be fancy but has a solid reputation, plan your party and use Evite for the invitation and response. Allow 7-10 days for responses – last minute invites can be ok. Spontaneity is particularly appealing at this time of year.

Invite 30 guests and expect 10 to show up. Prepare five or six finger foods and arrange a signature cocktail. If someone asks for beer or wine, give it to them. Your party can be from 6pm to 8pm. Most people will have two drinks, the restaurant will tell you how much food to get on your way. You’ll likely be spending $60 per person, which means a table of 10 will cost around $750.

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You can also throw a party for your LinkedIn connections. It would be a wonderful way to introduce your colleagues to one another and could create billable hours. You might want to turn this into a pizza, salad, beer and wine affair, but so what? It’s a great idea regardless. If you have 100 contacts, plan on 25.

If it’s too late to throw a party this year, the December Greetings cards and stamps you send to clients and referral sources are tax deductible. Also, if certain clients have given you a generous amount of billable hours as a gift, perhaps with a running advance, then send those clients a gift. Check with the company’s human resources department to see if business gifts are allowed and if there is a gift limit. The gift will improve the relationship and it is also tax deductible.

Thank you for reading,