If you’re a small business owner, you probably know that every dime and nickel counts. So, not only do you need to increase your profits. But, you also have to reduce your expenses and focus on decreasing your tax liabilities.
Unfortunately, like most business owners out there, you probably won’t have the funds or resources to onboard multiple tax professionals or accountants who can take over the bulk of your financial and tax management.
So, instead, you will have to get your hands dirty. After all, it’s your business, and you must do everything in your power to ensure it operates as smoothly as possible. But, before you dig deep, you need to learn everything there is to know about businesses taxes, be it property tax, sales tax, income tax, or payroll tax.
That said, businesses need to pay a particular amount of tax on their yearly income, whether you own a small or a large company. For instance, if you’ve onboarded employees, you must pay employment tax( also known as payroll tax).
On the other hand, you’ll have to pay property tax if you’ve acquired a physical location for your business. That said, every small business owner aims to minimize the amount of money they have to pay in taxes.
After all, you’ll already be knee-deep with recurring businesses expenses, and adding taxes to it will only stress you out even more. With that in mind, let us look at a few ways you can minimize taxes.
Hire a tax professional.
You’re probably wadding through your business’s tax records right now. But, you don’t have to go at it alone! However, you’ll soon realize that going at it on your own will frustrate you and eat up unwanted time.
You can hire a tax professional who holds an LLM.in taxation degree to leverage their expertise and keep up to date with the latest tax code. Furthermore, it will ensure that you’ll get all the tax credits and deductions your business is eligible to receive.
Moreover, your tax professional will advise you all year round and incorporate the best strategies to ensure that you make intelligent tax-saving decisions.
But, before hiring one, consider doing some research and shortlisting a few candidates for the role. Then, onboard one that fulfills your tax management demands and requirements.
Hire a family member.
One of the easiest ways to minimize small business taxes is to hire a family member as an employee. The Internal Revenue Services(IRS) allows various income tax benefits to businesses that employ family members, even their children.
Moreover, according to numerous tax professionals and accountants, small business owners will be subject to a lower income tax rate or can even eliminate it on the salary paid to their family members.
For instance, businesses registered under the sole proprietorship legal structure don’t have to pay Medicare, social security, and FUTA(Federal Unemployment Tax Act) taxes on the salaries they hand out to their children.
So by taking this approach, you will have to justify that earnings come from business purposes.
Consider a retirement plan.
While owning a small business, you will give up the advantages offered by a 401k match. However, there are multiple retirement account choices you can go for to ensure that you reap numerous tax benefits and maximize your retirement savings.
For instance, by going for a 401K plan, you can put away a maximum of $57,000 in retirement contributions. In addition, some retirement plans include 403(b) plans, IRA or a Roth IRA, and Simplified Employee Pension Plan (SEP), to name a few.
To know more about retirement plans for small business owners, consider visiting the IRS’s website.
Deduct traveling expenses.
If you travel for business purposes, there is a high chance you might be able to deduct expenses associated with your travels. Business travel is fully deductible if you take the right approach.
You might not be able to do the same for personal trips unless you can justify traveling on your own accord and money for business reasons. So, you can redeem any frequent flier miles related to business-related journeys in the future!
Change your business’s legal structure.
As an owner of a small business, you probably won’t have the advantage of your employees paying their taxes. Instead, you will be on the meathook for all their medicare and social security taxes. Moreover, if you’re running a business under the LLC business structure, you’ll be taxed for the aforementioned liabilities.
But, under a few circumstances, you might be able to reduce the amount of taxes you have to pay for your employees. Therefore, an LLC legal structure is a wise choice for small business owners looking to save a fast buck on their yearly taxes.
Save money for healthcare purposes.
One of the most effective methods to save on taxes is to put aside some cash for healthcare requirements. While you might say that you are currently healthy, keeping some money tucked away will allow you to be better prepared to tackle unnecessary healthcare needs in the future.
You can achieve such a feat by utilizing an HSA( Health Savings Account) if you’re eligible for the high-deductible health plan.
According to expert CFA Sean Moore of Smart College Funding, businesses that go for an HSA can drastically reduce the amount of taxes and medical costs they incur at any given point in time.
He also explains that savings come in three different ways, also referred to as the triple tax advantage; your contributions are pre-tax, they’re tax-free as far as growth is concerned, and qualified medical costs and tax-free.
Pay off bad debt.
The year-end is the best time of the year to review every customer account your small business has, mainly if it operates on an accrual accounting method. Firstly, consider identifying the customers who are unlikely to pay up.
Once you do, you can write off the amount of money they owe your business as ‘bad debt’ and deduct it from your business income to reduce paying more on taxes. Typically, bad debt includes loans made to employees, vendors, or employees who fail to pay you back.
With wise tax planning and discipline, you can decrease your taxable income as a business owner and save more money in the process. That said, never forget to ensure that you hire a reputable tax professional to identify whether you’re eligible for the methods mentioned in the article.
Once you do, consider incorporating these ways into your business strategy to save more money and pay fewer taxes on your income.