WHAT ARE THE BEST TAX PLANNING AND SAVING STRATEGIES FOR YOUR SMALL BUSINESS?
To help every small business owner and entrepreneur should save on their taxes legally, we have asked this question for every experienced entrepreneur and financial statement advisor to learn their best strategies. From hiring family members to setting up a health saving account for HSA, a few simple ways can help you save on taxes.
HIRE A FAMILY MEMBER
Hiring a family member is one of the best ways for small businesses to reduce taxes. There are many options the IRS allows to do this. You can even hire your children to hide your income from taxes. The income paid to your child has a lower marginal rate; sometimes, the tax is eliminated. In addition, if your business is a sole proprietorship, your child’s wages are exempt from social security and health insurance contributions. Just ensure a reasonable income for trading purposes. If you hire a spouse or family member this will also help reduce taxes as the income tax will not be subject to the Federal Unemployment Tax Act (FUTA).
BUSINESS LOSS ACCOUNTING
Tracking business losses is a great way to reduce the tax you owe each year. Business losses can be deducted from income, often reducing your taxable income by several thousand dollars. This can save business owners more money than just deducting things considered personal, such as mortgage interest or charitable contributions.
TRACK YOUR TRAVEL EXPENSES
You can deduct more than your airfare and mileage for your travel expenses. Many entrepreneurs are starting to travel again to revitalize their businesses and expand their industry knowledge. Fortunately, you can deduct most travel expenses as long as the trip’s primary purpose is business-related. In addition to airfare, trips to and from the airport and travel by car, train, and ferry are also deductible.
Accommodation and meals are deductible if they are on a business trip. Accommodation is deducted €100. And in 2021 and 2022, business meals are deducted €100 from the cost of meals provided by restaurants. However, nothing is deducted if the trip is a trip in disguise. So be sure to keep detailed records of your trips and all expenses incurred so you can back up your claims if the IRS decides to dispute them.
CONSIDER ALL EXPENSES LIKE RENT AND UTILITIES
Costs reduce your overall tax burden, so always include all business-related expenses when applying. These costs may also include the rent you pay for your business space, which can also add up yearly. You can also have amenities like high-speed internet, as long as they are directly linked to running your business. Be sure to account for these expenses accurately, as they can reduce your taxable income when you file a tax return.
HIRE A REPUTABLE CPA
Hire a reputable chartered public accountant (CPA). Many laws and intricacies are involved in business taxes, and you want to take advantage of something important regarding your taxable account. For example, you can use health care savings or deduct qualified childcare expenses.
A professional CPA will have a built-in strategy for getting your taxes right, no matter your financial situation. In addition to making sure you pay off any debt, you may need to be aware of many write-offs that can reduce your tax bill. Remember that CPAs don’t cost you money; they save you money.
DEDUCTING ASSETS FOR CHARITY
An effective tax reduction strategy is to donate and deduct assets to charity. Donations always benefit charity and can benefit your business by demonstrating your loyalty to your community and your brand values. Choose a charity that aligns with your brand and community, and share more about it with your customers. It’s a win-win, meaning more loyal customers for your business.
KEEP TRACK OF EVERY INVOICE WITH THE SOFTWARE
Careful record-keeping and receipt tracking are how small business owners take advantage of all possible deductions. Disorganization can mean paying more taxes than necessary. However, accurately tracking hundreds of pieces of paper can become tedious, messy, and overwhelming. So small business owners must invest in software that tracks, stores, and organizes every invoice. Finding proof of tax season expenses is much easier, saving you time and hard-earned money. Catching any deductible expenses is known as the key to saving money, so invest in such software that takes the burden off your records.
GET THE MOST MONEY OUT OF YOUR PENSION PLAN CONTRIBUTIONS
My advice to small business owners for tax savings is to maximize their retirement contributions. While it depends on how much your employees contribute, setting aside up to $58,000 in your 401(k) retirement plan is a smart move at the end of the year. We always recommend getting professional advice to help you determine your eligibility and contribution limits to a pension plan.
USE THE ORIGINAL DEDUCTIONS
If you officially opened your small business last year, you can use a few deductions that are only available to help new businesses with their hefty upfront costs. You can deduct up to $5,000 in initial costs and $5,000 in organizational costs if your total initial costs are less than $50,000. In addition, you could use the reduced partial excess deduction if you spend between $50,000 and $55,000.
STRUCTURE YOUR SMALL BUSINESS INTO AN LLC
Choosing to structure your small business as a limited liability company (LLC) can give you tax advantages, such as transfers. Your business income is passed on to you as the owner and may be taxed at the individual income tax rate. You also avoid any doubt of double taxation and save on Social Security and Medicare taxes.
DEDUCT YOUR VEHICLE
Small businesses can write off the full cost of a vehicle that weighs more than 6,000 pounds (i.e., a sedan or light truck). If this is the case for your transportation, you can deduct up to $18,000. You must also use the vehicle for business purposes; however, if you use your truck or van half for business and half for personal use, you can deduct 50% of the cost.
SETTING UP HSAs FOR EMPLOYEES
An innovative and effective way for small businesses to reduce their tax burden is to set aside money for future healthcare needs. As medical care becomes increasingly expensive, saving money for future medical needs is wise, even if you are healthy today. The best way to do this is to create a health savings plan for employees. By setting up HSA, companies can reduce taxes and future healthcare costs. Contributions are tax-free. And when it’s time for you to withdraw your medical expenses, those withdrawals will be tax-free.