As we're wrapping up 2020, you might be looking into some ways you can make your tax bill a little smaller.
Although many sectors were hit hard by the pandemic, many companies experienced rapid growth because of the pandemic. If you are fortunate enough to be part of the latter, here are some ways to bring forward some company expenses and decrease your tax burden.
I wrote this list from my perspective as a freelance designer/front-end developer. I suspect most of the list will apply to knowledge workers in general, but it is in no way a comprehensive list.
The first one on the list is not a company expense but rather a financial investment. Many countries allow you to invest some amount of money into investments tax-free.
In the US, these are called a 401(k) or an IRA. If you don't live in the US, check if your country of residence has an equivalent.
The first thing you should look to upgrade are your primary devices.
- Laptop or desktop computer
- External monitor
- Hard drive
- Peripherals (mouse, keyboard, desk mat)
- Tablet (with accessories)
- Extra security devices like a Yubikey
- Router or other networking equipment
If you now spend most of your time on video calls, you might also want to invest in having a better setup
- Green screen
- Lighting panels/boxes
- Sound absorption panels
- Microphone (with boom arm)
- DSLR camera that has a clean HDMI output so you can use it as a webcam
- Elgato Stream Deck
Many of us found ourselves working from home full-time this year and likely for the next year as well. If you haven't already, consider investing in an improved home office.
Upgrade your office
- (Sit-stand) Desk
- Ergonomic chair
- Speakers to play music
Backups or Spare Equipment
Some of your equipment might be needing replacement soon or would hit your business very hard if it failed. For example, if your laptop breaks and it takes 1-2 weeks to repair. It would cost you a lot of money if you didn't work during that time.
You can use the cash surplus of this financial year to buy equipment in advance that you think might break down in the next 12 months or purchase extras, so your business isn't interrupted by repairs. Apple laptops of the last few years often have to be repaired, and they won't give you a backup device. A backup MacBook Air might be a lifesaver if your MBP fails, as you can continue working.
Learning new things is essential if you want to remain relevant, and it also improves your prospects. Education often has a very high return on investment (ROI), so it's both an excellent tax deduction and an investment in yourself. Spend money on:
- Private mentoring or coaching
Networking and Marketing
It's not just about what you know; who you know is often just as or even more critical.
- Networking events
Chances are very high that you are using a variety of software tools in your day-to-day work.
- Switch to a yearly subscription; not only is that cheaper than paying monthly. It also allows you to deduct the full expense this year.
- Upgrade to a higher tier
- Add new tools
This one is mostly for IT folks as we tend to have many domains for (future) side-projects. We will definitely start on the idea someday😉.
Instead of renewing your domain every year, extend it by 2-10 years if you are sure you are unlikely to get rid of it during that time anyway.
Same as paying yearly for software subscriptions, by paying for multiple years at once, you can deduct the full amount in this tax year.
If you had a good year financially, use that spare cash to put yourself in a better position next year. Buy insurance for the devices you use, insure yourself for income loss or liability, etc.
Donate to charities
2020 was a challenging year for many people. Some sectors like hospitality and tourism were hit exceptionally hard. If you are in the fortunate position to have to worry about decreasing your tax bill, consider doing it by giving some to a charity that is close to your heart.
Many countries allow you to deduct charitable donations from your taxes. Check your local tax law to see which organizations are eligible or if there are other requirements your donation must meet.
Gifts and Bonuses
If you have employees or work with contractors who contributed to your success this year, consider giving them something extra. A cash bonus or some other way to show your appreciation.
If you don't have an office but commute or regularly travel to clients. A new car or (electric) bike are also deductable if you use them for work. You can buy or lease a new car or invest in a new (electric) bicycle to make your commute more comfortable next year.
Many governments have extra tax breaks in place to promote electric transportation. Make sure to check your local tax laws to check if there are extra benefits you can receive.
This one doesn't decrease your tax bill but allows you to get that little extra from the money you do spend.
If you are spending money anyway, try to use credit cards with good rewards or cashback programs.
For example, the Apple Card gives you 3% cashback on the money you spent at Apple. That's an easy way to save 50-100 bucks if you plan on buying a new MacBook Pro anyway.
You can also use a credit card with a good point reward program like American Express. These points are easily converted to airline programs so you can do something fun in the future, like a free upgrade to business class on your next flight. If you don't have an American Express card already, you can sign up for one with my friend-link, and you will receive extra points.
Check the terms first as they usually require you to spend X amount within three months to receive the points. If you plan on spending that already for your business, it's an easy way to get extra points.
That's a Wrap
That's all. What are some business purchases you've made this year that are a great investment? Send me a tweet or email, and I'll add them to the list.