7 Great Tips to Save on Your Business Taxes
Everyone knows what the most certain things in life are, right? Death and taxes. There’s not much we can do to avoid death’s inevitability, but you might get to deduct and avoid paying certain taxes if you’re well-informed and well guided.
Take a Deep Breath and Prepare
What happens to many business owners is that they get so fearful of the amount of taxes they might have to pay that they lose sight of their goals. Business owners can become so concerned that they will uproot a profitable business and attempt to relocate to a low-tax jurisdiction.
Unfortunately, making a decision based on fear harms the company’s growth. While the owner(s) may have saved on taxes, they end up losing money because they didn’t account for increased administration costs, compliance costs, or even audit risks.
Also, taxes tend to be a political football. The tax law is fluid with frequent changes that can catch business owners off-guard. This is why it’s crucial to your business to employ the services of experienced tax professionals and to consider them as partners in your business. Tax professionals can develop holistic, customized tax and financial plans that include tax incentives and deductions that are aligned with your business’ objectives.
2. Register as an LLC with S-Corp Tax Election
Just because you’re a “small” business doesn’t mean you should put off choosing a correct corporate entity for your company. Even sole proprietors can significantly benefit from LLC status. LLC status can help you avoid self-employment tax and provide you with other tax benefits once the new tax law changes go into effect. For example, LLC’s can file an S Corporation Tax Election Form 2553 which indicates to the IRS that your LLC should be taxed as an S corporation, which will reduce the amount of self-employment tax you owe.
3. Open a Tax-deferred Retirement Plan
Want to lower your tax rate and ensure your financial well-being during your retirement years? Tax-deferred retirement plans are the way to go. Socking money away in a retirement account will lower your taxable income and allow you to save for your future in interest-bearing accounts. You don’t pay taxes until you withdraw the money in retirement.
4. Take Advantage of Bonus Depreciation
If you have a business property, and you used it for company purposes after September 27, 2017, but before January 1, 2023, your bonus depreciation percentage increases to 100%.
Do you use a vehicle for your business? All company cars in service after December 31, 2017, get to claim a maximum depreciation of $10,000 for the first year of service, or $18,000 under the 100% bonus depreciation.
5. Take Advantage of IRC Section 199A
Check out the new and improved section 199A under the new tax laws. Any entities with a pass-through will qualify for the new deduction. Before year-end, taxpayers can create pension plans to reduce their income, and this will make them eligible for a 20% tax deduction. The deduction could save you as much as $100,000 in taxes.
6. Be Organized
Wasting time tracking down a boatload of paperwork right before taxes are due can cost your business time and money. Create a system to stay organized and on top of your receipts and other tax information long before the deadline. Being organized will give you a better chance of taking advantage of all the tax savings available to you. You’ll also avoid any late filing fees if you have everything organized and easily accessible. Plus, your tax preparer won’t charge a fee for trying to organize paperwork for you right before the filing deadline.
7. Hire Independent Contractors
Independent contractors can save your business money in several ways. They lower your overhead, and you can use a contractor during times when you’re super busy and need the help. In addition, business owners don’t have to pay social security or Medicare taxes for independent contractors nor do they have to fund a benefits package for them.
However, hiring independent contractors is not a panacea, and there are a few legal and tax requirements you’ll need to follow when filing. Check out the IRS website for more info.
As you can see, it’s not all doom-and-taxes-gloom for small business owners. There are several deductions you can take to reduce your tax liability and protect your bottom line.