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Helpful Tips For Small Business Tax Planning

Helpful Tips For Small Business Tax Planning


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As your small business income grows, it can be surprising how large your tax liabilities can become each year. Your tax bills can be excruciatingly high, ranging from state and federal income taxes to self-employment taxes. For the vast majority of small businesses, every dollar counts. You need to minimize your tax obligations in addition to increasing your revenue as much as possible. Small business tax planning is an essential component of running a profitable business.

Small businesses should make advantage of the expertise provided by professional tax advisors and certified public accountants when it comes to building an effective strategy for tax planning in order to maximize profitability. These professionals are able to lessen the stress of your tax obligations while also helping you bring in greater revenue.

“When you are the owner of a small business, the most important thing for you to focus on is finding ways to increase your profits. In addition to that, it will be to your benefit to lower the amount of tax that you are accountable for paying.”

Accounting Blog

When you are the owner of a small business, the most important thing for you to focus on is finding ways to increase your profits. In addition to that, it will be to your benefit to lower the amount of tax that you are accountable for paying. There is a wide variety of options for small business tax planning.

Regardless of which kind of tax planning you choose to implement, you should always keep the following goals in mind as you work through the process:

  • Lowering tax rate
  • Reducing taxable income
  • Claiming credits and deductions
  • Avoiding tax planning mistakes

Fortunately, there are many practical tax filing strategies that can help business owners optimize their credits and deductions. Continue reading to learn how to reduce your small business taxes each year.

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Best Tax-Saving Strategies for Small Businesses

Seasoned business owners and financial professionals were asked for their advice on the best ways for small business owners and aspiring entrepreneurs to lower their tax obligations in a way that is both legal and simple. There are a lot of simple steps you may take to potentially reduce your tax burden.

Look for Ways to Reduce Your Adjusted Gross Income

The first step in small business tax planning is to find ways to reduce your adjusted gross income (AGI). Your income may remain in lower tax brackets, allowing you to claim larger tax credits or avoid higher taxes such as the Medicare surtax.

Some of the strategies you use to reduce your AGI may have an impact on your individual tax returns. Individual contributions to retirement accounts, itemized deductions (including mortgage, property tax, and charitable contribution deductions), and even contributions to a Health Savings Account (HSA) are all covered.

Hire Family Members

Hiring a member of one’s own family is one of the best ways for small enterprises to reduce their taxable income. In this regard, the Internal Revenue Service offers taxpayers a variety of options. To avoid paying taxes on your income, you can even hire your kids to work for you. If you give your children an income, your marginal tax rate will be lower, and in some situations, you’ll pay no tax at all. The wages that your child receives are not subject to social security or Medicare taxes if you run your business as a sole proprietorship. However, be sure that the earnings can be justified in light of how the company is run. Contrarily, because the earnings from hiring a spouse would not be subject to the Federal Unemployment Tax Act, there would be a saving in taxes (FUTA).

Account for Business Losses

Keeping thorough records of your company’s losses can help you reduce the overall amount of taxes you are required to pay each year. It is possible to deduct business losses from taxable income, which can frequently lower your company’s total taxable income by thousands of dollars. This tactic can assist business owners save a large amount of money compared to just taking deductions for things that could be viewed as personal, including interest paid on a home mortgage or donations to charities.

Consider All Expenses Such as Rent and Utilities

If you remember to include all of the expenses related to operating your business in your tax return, your overall tax burden will be lowered. These expenses may include things like the monthly rent you pay for your business premises, which may add up to a sizable number over the course of a year. High-speed internet access is also acceptable as long as it is directly related to how your business operates. Make sure to accurately account for these costs when you submit your taxes because they can reduce the portion of your income that is taxable.

Hire a Reputable CPA

Consider engaging a trustworthy CPA (CPA). You don’t want to take the chance of forgetting something crucial when it comes to your taxable account due to the complexity and number of regulations governing business taxes. A qualified child care expense or a health savings account may be accessible to you.

Regardless of your financial condition, a qualified CPA will have a plan in place to ensure that your taxes are done correctly. There are several write-offs you may not be aware of that could reduce your tax burden, in addition to making sure you pay everything that is due. Keep in mind that CPAs are a financial asset, not a liability.

Deduct Assets to Charity

One effective way to reduce one’s overall tax liability is to donate to charity and take advantage of the tax deduction that results from doing so. Regular donations show your dedication to the principles upheld by your brand and society as a whole, which benefits the charity as well as your business. Choose a charity that has a close relationship with your business and the area it serves, and then give your clients more information about the charity. Everyone wins in this scenario, which ultimately results in more loyal customers for your business.

Track Every Receipt with Software

The owners of small businesses should keep precise records and keep track of all receipts in order to get the most out of any tax benefits. If your finances are disorganized, it’s possible that you’re paying too much in taxes. The owners of small businesses should consider making an investment in software that logs, archives, and organizes each receipt because keeping accurate track of hundreds of pieces of paper may quickly become laborious, chaotic, and a difficult task. At tax time, it will be much simpler to locate documentation of costs, which may save you a number of hours as well as the money you’ve worked so hard to achieve. Because keeping tabs on each and every thing that is tax deductible is the key to successful money management, you should consider making an investment in software that will free you from the burden of keeping records.

Utilize Startup Deductions

If your small business was just formally established within the past year, you might be eligible for a few deductions created especially to help startups manage the high startup costs. You were allowed to deduct up to $5,000 in launch costs and another $5,000 in organization fees if your total startup costs fell under $50,000. You can be qualified for a deduction that is proportionately reduced by the extra amount if your spending falls between $50,000 and $55,000.

Structure Your Small Business as an LLC

If you opt to incorporate your small business as a limited liability company (LLC), you may qualify for certain tax benefits, such as the pass-through. As an owner who receives a direct cash flow from the firm, your portion of the company’s profits is subject to the same taxation as your personal income. Additionally, you save money by avoiding double taxation and by avoiding Social Security and Medicare taxes.

Utilize Home Office Deductions

Nowadays, it’s more common for small business owners to work from home full-time. Anyone reading this who runs a home business may be eligible for the home office deduction. The information you need to determine your eligibility and appreciate the workings of this frequently alarming home office deduction is provided below.

This advantageous tax loophole may save you hundreds or even thousands of dollars in taxes every year. The best part is that whether you utilize your residence for business or not, you already have to pay for it. Take the time to discuss the home office deduction with your tax preparer to ensure that you are eligible.

Keep Accurate Records

Do not ignore your bookkeeping. Filing the taxes for your company may be a time-consuming and challenging task, even if everything is in order and you know exactly what you need to do. Always make it a point to arrange some time during the year to ensure that your accounting records are always up to date, and make sure to schedule this time as soon as possible (or hire someone to do it for you).

Utilize Fringe Benefit Plans for Employees

The United States has seen an increase in employee pay in recent years, which has resulted in higher employment tax costs. One tactic you can use to lessen the financial burden placed on your company’s budget is the supply of supplemental perks to employees.

You will be liable for paying additional employment taxes if you increase your employees’ wages. Including benefits like health insurance and retirement plans in the overall remuneration package for employees is one way to get around this.

You as an employer might be interested in tax-exempt fringe benefits such as the supply of medical insurance, group life insurance, assistance with childcare, reimbursements for transportation costs, staff lunches, or even tuition reimbursement.

Because the tax status of each company is different, it is essential to review these small business tax planning methods with a tax professional before making any significant changes or actions  Nevertheless, utilizing these tactics should assist you in getting ready for the meeting you have scheduled to plan your taxes for the upcoming year and learning more about how your small business might reduce its tax liability.

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