Ways Small Business Owners Can Cut Expenses and Save on Taxes
The COVID-19 pandemic has changed this country’s economic marketplace in ways we can’t yet imagine. If you own a small business, are a contractor or gig worker or are self-employed, you may be riding this unexpected wave, not quite knowing where your business is going to land.
Despite all the uncertainty swirling around out there right now, you can take hold of the situation and make sure your business keeps its head above water. Here are some smart steps to make now that will also pay off after this crisis has passed.
Cutting costs and shoring up your budget
Small businesses can live and die by their budgets in the best of times, but when the going gets tough, a solid financial plan is vital. Here are some tactics for cutting costs and getting the benefits you deserve.
Apply for the Paycheck Protection Program small business loan
You probably know that the Paycheck Protection Program (PPP) is intended to keep employees on your payroll. Use the money to pay your people through this crisis, and you don’t have to pay it back. This is free money.
Small businesses were eligible to apply in early April, while independent contractors and self-employed people got the green light as of April 10. The Small Business Administration has comprehensive information about this loan program, including where to find a bank in your area that offers it.
And act right away: the program is temporary (the deadline to apply is August 8, 2020), and funds are first come, first served. Did we mention it’s free money?
Do you have an emergency budget on the books? If not, now’s a great time to create it. Even if you’re self-employed or a gig worker, you need to stick to a budget, and it’s a smart move to prepare for weathering emergencies like a worldwide pandemic or more common scenarios like floods, tornadoes, earthquakes or other natural disasters that could shut down your business temporarily.
It means paring down your expenses to the bare minimum. Travel, big expenses like new equipment and, likely, hiring are frozen for the time being. The summer kickoff party you had planned for your staff is probably canceled, too.
Look a little deeper, though, and you’ll find many other, less obvious ways to cut costs. Here are a few ideas:
- Check your utilities and energy use. Is the office thermostat turned down? Lamps, little appliances and electronics unplugged? All of the lights off?
- Make sure your usual services are put on hold. This means your office cleaning service, groundskeepers, subscriptions, anything non-essential.
- Tackle your current debt. This means talking with the vendors, suppliers or lenders you owe. Make the minimum payments only, for now, or ask if they have a COVID relief policy that can suspend payments temporarily. Many companies are doing this, so it pays to ask. The same goes for your office rent.
Double-check your insurance coverage
When’s the last time you dusted off that policy? If you can’t remember, now’s the time to take a look.
You may have coverage for some of the losses you’re experiencing because of a business downturn or a complete shutdown due to COVID-19. Emphasis is on the word “may,” here.
Policies vary widely, but it’s worth a quick call to your agent to talk over your policy, its exclusions and whether you’ll be covered for any losses you’ve incurred.
Maximize your retirement account tax benefits
If you have a retirement account, great! If not, now is the time. The tax deadline is extended until June, so now is a great time to open a retirement account or evaluate whether you’re getting all the tax benefits you’re entitled to under your current plan. Let’s look into this in more detail.
[Related resource: The Tax Preparation Checklist]
Tax benefits for common self-directed retirement accounts
Retirement accounts like SEP and SIMPLE IRAs, Solo 401(k)s and others can offer potentially larger contributions and tax benefits each year, but what about Roth or traditional IRAs? The fact is, getting the most out of your tax benefits can be complicated.
With SEP and SIMPLE IRAs, Solo 401(k)s, and traditional IRAs, your out-of-pocket contributions are pre-tax, and may provide a tax deduction in the year of contribution. You’ll see tax-deferred growth until you start withdrawing during retirement, when the funds will be taxed as ordinary income.
The whole idea of Roth IRAs is switching that tax liability up to the front end, rather than the back. With a Roth, you make your out-of-pocket contributions after-tax, so you don’t get any tax deduction upfront. Your qualified distributions and withdrawals are tax-free.
Uncertain times don’t have to mean uncertain finances. At Equity Trust, we’re here to help. Find out more comprehensive information in our “Guide to Self-Directed Accounts & Taxes.”
Get answers to your questions and learn more about building wealth with tax advantaged accounts.Ask Us