The third quarter of 2020 Taxes is due on September 15, 2021. How prepared are you to file your taxes? Are your books in good shape? Are you aware of the tax deductions that you can benefit from? Let us give you a head start so you can prepare for your tax returns right away instead of leaving it to the last minute and making avoidable errors.
Here is a closer look at the ten best Tax Tips 2021 you can follow when filing your tax returns in the upcoming quarter.
1. Keep your book up to date
The top tax tip for 2021 is to update your books monthly and ensure smooth Tax Preparation and tax filing. Crank out the latest revenue and expense details to estimate what you owe. If you haven’t done your books yet, start now to make up for the lost time.
2. Catch up on your previous quarters’ financials
The third quarter of 2021 is just around the corner. The tax preparation tip of the day is to create an updated projection for the upcoming quarter.
Comparing the first two quarters’ financials to the previous year’s figures is a viable tax preparation tip to help you understand how your tax situation is shaping up and know what you should pay. If your estimated income taxes were close, you can use that information to figure out whether you need to pay more in taxes because of an increase in income or save funds for when filing your tax return.
3. Increase your tax deductions
Tax deductions are a great way to save! Here are some tax preparation tips to help you secure beneficial deductions.
Tax Tip 2021 #1: Invest in business property
Consider investing in deductible items, such as buying new equipment, making upgrades, or putting other purchased business properties in service. This qualifies for deductions for all or part of the cost of that property in the year you put that item into service. However, make sure that your investment improves the profitability of the business or it won’t be worth it.
Tax Tip 2021 #2: Make use of your unused inventory
Did you know your obsolete inventory and uncollectible debts are deductible? Just get rid of the unsold inventory and deduct what you originally paid for them.
Tax Tip 2021 #3: Earn as you donate
Donations help you reduce your taxable income. So if you donate to charity, consider giving away non-cash items in addition to money. This may include clothes, shoes, and toys that can lead to significant deductions. Make the most of what you are giving.
Tax Tip 2021 #4: Defer your income
Want to save more on taxes? Consider deferring your income to the upcoming tax year. Make sure you check with your tax consultant before you do so.
Tax Tip 2021 #5: Spend more
Instead of deferring income, you may consider incurring certain expenses. Accelerating expenses can lead you to earn a tax deduction in the current tax year. A tax professional will help you take the right steps based on your business’ needs.
See Also: What Biden’s Reported Capital Gains Tax Hike Could Mean For Startup Employees
4. Check your retirement offering
Perks such as retirement plans for your employees can also reduce your taxable income. Small businesses have the right to offer specially qualified retirement plans outside of the typical 401(k) or IRA. This includes Simplified Employee Pension Plan (SEP) programs that help you set aside up to 25% of your income.
5. Estimate your tax liability sensibly
To estimate how much you have to pay in taxes, you’ll have to go through your tax bracket. Adopting a conservative approach will help you avoid penalties and errors. Make your entire tax payment based on your top estimated tax bracket for the year. Multiplying your quarterly revenue by four and comparing it to the previous year’s full-year results gives you a somewhat realistic proxy for your tax bracket.
To reach an estimate of your tax liability, multiply your quarterly results by your tax bracket. Remember, overpaying a bit is far better than paying less. Any sensible taxpayer would rather earn a refund than end up facing penalties.
6. Know how to enter your payment
A crucial tax season tip includes ways to submit your tax payment. One option is Direct Pay, which lets you use a debit card for a bank account transfer.
The other option is to pay with a credit card— however, this method of payment incurs a fee.
It will be more beneficial to pay with Direct Pay. However, you can opt to pay your taxes with your credit card if you see any chance of earning some reward on a new card, provided the value of the bonus earned is higher than the fee charged for using the credit card to pay your taxes.
One interesting tax season tip is to go traditional and send a check in the mail!
7. Keep a record of your payment receipt
Once you have completed the tax payment process, don’t forget to take a screenshot for your records. That’s a critical tax tip for 2021. This will help you know how much you paid in taxes each quarter, which will help you prepare your annual tax return.
8. Head over to IRS Website
Log into your tax account on the IRS website the day after you paid your taxes to ensure your website shows that your payment has been received.
9. Mark your calendar for the next quarter’s due date
Do give a pat on your back once you achieve yet another milestone of your quarterly estimated tax payment, following these tax tips 2021. And as you do so, don’t forget to circle out the next quarter’s due date on your tax calendar; if you want to stay on track. This will remind you to be prepared for the next tax filing.
Heads up! Some more amazing tax tips 2021 are coming your way for the last tax quarter in the next blog.
10. Turn to the experts – The best tax tip for 2021!
The latest tax laws have made things even more complex for small businesses. Moreover, if you are in a growing phase of your business, it is wise to focus on your core operations leaving the rest to the experts.
See Also: 2021 Federal Income Tax Brackets & Rates
Hiring a tax expert to prepare your taxes is a great alternative since they are well aware of the dynamics of tax laws, tax planning, deductions, and refund. Monily’s tax professionals have worked with thousands of businesses and startups making the tax season a breeze for them. They work closely with you, understand your books, keep your financial records tax compliant and enable you to make the most out of tax deductions.
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