7 Tax Strategies That Can Help Your Small Business
As a small business owner, you know better than anyone that any amount of money you can save can make a big difference. One area worth a closer look? Your taxes.
You might not realize it, but you can set yourself up for success from the beginning by making a few decisions that will make you eligible for numerous tax breaks and deductions. Similarly, you could be leaving money on the table by forgetting or hesitating to take certain steps from the onset.
Operating a small business is costly and difficult enough, so don’t put extra stress on yourself. The following are seven tax strategies that most small businesses and self-employed entrepreneurs can employ.
7 Money-Saving Tax Strategies for Your Small Business
1. Work From Home: If you know you’re going to run a small operation for a while, consider working from home, which not only saves on overhead costs, but also can result in a great tax deduction for your small business.
Let’s say the space you use exclusively for work is 20 percent of your home’s total square footage, and that you accrue $20,000 in office expenses for the tax year. You should be able to deduct $4,000 on your return.
Having a home office also allows you to deduct car expenses, utilities, mortgage interest, repairs and more.
2. Consider Incorporating: You already know about how being a corporation will protect your personal assets in case anything goes wrong. Did you know that it can also save you a lot of money on taxes?
As an S corporation, you can reduce your self-employment taxes by collecting part of your income as salary, and part of it as distributions, which are taxed differently.
3. Set Up a Retirement Plan: Not only does a 401(k) or other business retirement plan secure your future, but it also enables you to take advantage of tax deferral rules to help you save money.
There are different types to choose from, each with its own pros and cons. A defined benefit plan, for example, allows for a much larger deduction because it’s dependent on your employee’s age, salary and future desired pension benefit.
4. Claim Your Deductions: It might seem obvious, but many small business owners simply neglect to claim deductions when they file their taxes.
At the start of each tax year, you should familiarize yourself with various tax credits and deductions so you don’t have to race to qualify for them.
It’s easy to get caught up in the day-to-day responsibilities of your business, and it’s also easy to see credits and deductions as cutting too many corners and possibly drawing the ire of the IRS. But as long as you have the proper documentation, you’re OK. Speaking of which …
5. Document Everything From the Get-Go: If you document throughout the year, you’ll be less likely to forget about making certain tax claims when it’s time to file. Keeping meticulous records also will help you avoid a costly and nerve-wracking IRS audit.
Make sure you’re familiar with reporting requirements and regulations, and keep receipts and invoices for years. The IRS only needs one misstep to start an investigation, and if that happens, don’t think it will stop at the most recent tax year.
6. Health Care Tax Credit: As a small business, you can claim up to a 50 percent deduction (and up to 35 percent for nonprofits) for premiums paid on your employees’ health care if you boast fewer than 25 full-time workers. A few other rules apply, but in short, boning up on this particular tax credit can help you determine how you structure health care benefits for your employees.
7. Hire the Right Tax Adviser and Preparer: Navigating all these considerations is complicated, especially if you don’t have a lot of experience. It’s also taxing (ha!) and time-consuming — we’re sure you’d rather spend your time and energy growing your business instead of figuring out tax laws and preparing paperwork.
A good tax consultant will also be much more thorough in finding ways to reduce your taxes and avoid and IRS audit.
Make sure you’re saving as much as you can on your small business taxes. Call McManamon & Co. at 440.892.9088 or contact us online for assistance with your small business’ taxes and more!
Tags: McManamon, small business, small business taxes, tax strategies | Posted in McManamon & Co., small business, taxes