Higher taxes can put a significant financial strain on your small business, affecting profitability and growth.
Fortunately, there are many tax savings strategies to reduce your tax liability. The IRS offers dozens of tax deductions for entrepreneurs. Besides, there are strategic tax moves, including hiring family members to implement HSAs, that can further optimize your financial position.
Here are ten tips to help you minimize your small business taxes.
1. Keep accurate records
Maintain meticulous records of your financial transactions throughout the year. By keeping track of everything, you can claim all deductions that you are entitled to. Additionally, good record-keeping can help you file accurate and timely tax returns and avoid penalties for noncompliance.
2. Maximize tax credits and deductions
The US tax code offers numerous tax deductions for small businesses. Ensure you claim tax deductions for all qualifying expenses incurred to operate and maintain your company’s business.
3. Hire family members
The IRS allows small business owners to claim deductions on the salary paid to a family member who is a bona fide company employee. However, ensure that you pay them reasonable compensation for the services they provide for your business.
4. Take advantage of tax credits
Many tax credits are available at the federal and state levels and locally for small businesses. Capitalize on the tax credits that apply to your business, especially those related to the R&D and the Work Opportunity Tax Credit.
5. Expand your employee benefits offerings
Investing in certain employee benefits can result in lower taxes through deductions the IRS makes available to small businesses. Include tax-advantaged benefits such as Health Savings Accounts (HSAs) and childcare plans in your benefits package.
6. Utilize retirement accounts
Consider maxing out your contributions to retirement accounts such as a SIMPLE IRA or a solo 401(k) to optimize your tax strategy further and build a secure financial future.
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7. Take note of vehicle and mileage expenses
Suppose you use your vehicle for business purposes. In that case, you can deduct mileage and some of your gas, oil, repairs, and other maintenance costs. Make sure to keep note of your business-related trips, documenting the mileage and associated expenses meticulously.
8. Claim travel expenses
Travel expenses are fully deductible if incurred to conduct business-related activities. However, you can combine personal travel with a justifiable business purpose to maximize your business travel.
9. Structure your business as an LLC
Consider structuring your small business as a Limited Liability Company (LLC) to utilize tax breaks. Operating as an LLC allows business owners to take advantage of the pass-through taxation rules and save on Social Security and Medicare taxes.
10. Stay current on tax law changes
Tax rules are constantly changing. Stay on top of updates and changes to maximize your deductions and credits. Review the IRS website and industry publications while regularly attending training sessions and workshops.
The final word
Reducing taxes can help you keep more money in the business. You can use the tax savings to reinvest into the organization to further growth and innovation.
While the tips above can provide a helpful roadmap, consider seeking expert guidance to further capitalize on tax-saving opportunities. Tax professionals can provide personalized advice based on your unique business needs and guide you through the process.
Want to know more about finance and accounting? Since 2006, Escalon has helped thousands of startups get off the ground with our back-office solutions for accounting, bookkeeping, taxes, HR, payroll, insurance, and recruiting — and we can help yours, too. Talk to an expert today.
This material has been prepared for informational purposes only. Escalon and its affiliates are not providing tax, legal or accounting advice in this article. If you would like to engage with Escalon, please contact us here.
