Tax Resolutions for 2021

January 15, 2021 by First Federal Bank

TaxesNobody looks forward to paying taxes, but a bit of preparation and planning can go a long way toward easing the stress for your small business. As 2021 gets underway, consider making these tax resolutions part of your business strategy for the new year:

Invest in tax software

If your small business hasn’t yet invested in tax filing software, 2021 is the time to do so. According to Entrepreneur contributor Peter Daisyme, options like H&R Block, TaxSlayer, and TurboTax are excellent ways to improve your peace of mind as a business owner. With the right tax software, you can count on always filing accurate returns, and claiming the maximum refunds available to you.

Keep better accounting records

Is your system for keeping track of what you make and what you spend as organized as it could be? If not, the new year is a perfect time to improve how your business does its accounting. WalletGenius recommends developing a strategy for streamlining paperwork such as digitally capturing receipts instead of trying to manage all that easy-to-lose paper. That way you’ll be well-prepared to accurately itemize tax deductions — and back up your claims in the event of an IRS audit. 

Take advantage of home-office deductions

If you have a home office set aside for your small business, use the new year as an opportunity to deduct those expenses from your taxes. Per Daisyme, if you work out of a home office, you can claim deductions for costs like internet, insurance, and even mortgage interest. There are rules and restrictions related to home-office deductions, so make sure you do your research and take advantage of professional tax advice.

Hire your spouse or kids

If your small business isn’t already a family business, 2021 might be the time to change that. Hiring your spouse can be an effective way to reduce your taxes. For example, WalletGenius points out you may be able to offer your spouse health insurance, add your children to the plan, then deduct the cost. If you run a sole proprietorship, you can hire your teen for a reasonable wage and not be required to pay Social Security or federal unemployment taxes for him or her.

Learn about CARES Act provisions

Due to the COVID-19 pandemic, last year was a tough one for small-business owners. However, the federal CARES Act did introduce a wide variety of tax credits and other relief to help businesses weather this unprecedented crisis. It’s well worth your while to consult with a tax professional in the new year and find out if any of the Act’s provisions apply to you. 

Save for retirement

Saving for retirement is crucial to your future, especially when you are self-employed. Consider stepping up your contributions to a traditional or Roth IRA this year. For 2021, CNBC reporter Alicia Adamzyk notes you can put in up to $6,000 per year — $7,000 if you’re over 50. Retirement contributions also come with tax benefits. For traditional IRAs, taxes are deferred and can be deducted from your return. With Roth IRAs, you pay taxes now but don’t have to do so later.

As your small business looks ahead to its plans for 2021, putting some of these resolutions into practice can be a great way to improve your financial situation and be prepared come tax time.

Categories: Small Business, Financial Education

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