TOP TIPS for Business Tax Saving
Businesses Owners can minimize their tax burden with proper planning. While the topic can be overwhelming, a tax professional and/or your accountant can play a vital role in helping them achieve thousands of dollars in savings so you can keep more money in your pocket. Educate yourself, plan ahead, and hire the right tax professional. Below are our top 10 tips to save on business taxes.
1. Stay in compliance and don’t sabotage your hard work
Business owners often listen to their colleges more than they listen to their accountant and end up claiming expenses that are not allowed or misreporting income. Business owners need to be aware that:
- Over reporting expense or under reporting income is illegal, which can be a huge detriment the business and its owners and
- Under reporting expenses or over reporting income – could cause you to pay a lot more taxes than you need to, which will sabotage your hard work
Let us keep your accounting in good order so you can avoid scrutiny on your books, IRS/State audits, and/or costly litigation among other things.
2. Consider Incorporating your Business
As business flourish opportunities for tax savings become available in unthinkable ways. Dream big and learn to let go of the “small business” phrase. Talk to your lawyer about the best alternative for incorporating your business (i.e. LLC or Corp.) from a legal viewpoint and talk to your accountant about which alternative saves you more in taxes and puts more money in your pocket.
3. Consider Tax-Deferred Retirement Plans
Consider implementing the retirement plan that best fits your business needs and your business can afford. Consider some version of an IRA or a 401k account, write off the expense related to your own retirement and that of your employees, reduce employee turnover, hiring costs, training costs, and keep more money in your pocket.
4. Learn about different tax incentives such as Bonus depreciation and IRC Section 179
To stimulate the economy the government allows businesses to depreciate certain fixed assets at a much faster rate than normal, which allows businesses to take the deductions and save taxes immediately. For example, Section 179 of the Internal Revenue Code allows businesses to deduct the full purchase price of certain qualifying fixed assets. This means that an asset that would otherwise be depreciated over a period of five or seven years can be fully depreciated in the year of purchase, which can save businesses large amounts of taxes.
5. Read about Tax Law Changes
Your tax burden can reduce your income by as much as almost 40%.
Keep your money in your pocket on in that of the government. Whether you read digestible books, join a blog, watch a video, or ask your accountant, the important thing is that you stay curious and stay informed. Remember, it is all over the news, it’s probably worth paying attention. The most recent phenomenon was the Tax Cut and Jobs Act, which help those who paid attention and most like hurt those who display some apathy and let themselves be overwhelmed.
6. Ask your accountant about New IRC Section 199A
Business owners should get familiar with Internal Revenue Code (IRC) section 199A in new Tax Cuts and Jobs Act (TCJA). This is the most significant change in tax law in recent decades and business owners and individual tax-payers should make an effort to learn how to take advantage of TCJA or how to mitigate negative impacts for their particular situation. For Business owners should learn about pass-through and the Qualified Business Deduction (QBI). C Corporations should learn about the flat rate, and individuals should learn about new credits, elimination of personal exemptions, and caps on state tax deductions – to name a few examples.
7. Home Office Deduction
If you work from home and have a dedicated space for storage and/or office activities related to your business, you may take a legal deduction and save taxes each year for as long as you are in business. Whether you rent or own a home, just talk to your accountant to ensure you know the basics the actual IRS regulation permitting this deduction. It is important to note that the space in the house is used exclusively for the business activity and on a regular basis. There shall be no evidence of personal use beyond business.
8. For LLCs, you may file form 2553 – requesting the IRS for S Corporation Tax Election
The treatment of your LLC as an S Corporation, for tax purposes, allows business owners to add themselves to payroll, decide on a reasonable salary, and have better control of how much self-employment taxes to pay. Without this, your tax treatment is the same as that of a sole proprietorship schedule C type business, which causes you entire net income amount to be subject to self-employment tax. The S Corporation tax treatment will allow you to reduce the amount taxes to pay, provided you manage your salary correctly. This is where your accountant comes in handy.
9. Organize your financial records
Paper train matters. Being organized on a regular basis is the easiest contributor toward helping your accountant get your accounting right, identify all the deductions, file your taxes timely, avoid penalties, and defend yourself well in the event of an audit. You all also eliminate the uncertainty of whether you capture things right, stayed in compliance, and took advantage of all the deductions and tax savings. Avoid having to scramble at the last minute, miss important aspects of your tax declarations, and the possibility of being accused of negligence. Clean books will keep you clean.
10. Consider Using our Expertise
If you don’t have formal training in accounting and taxation, trying to save small dollars in accounting and/or services would cause you to leave money on the table. Our professional services are affordable, we’ll help you get more tax deductions than you could get on your own, and your tax savings will more than offset the cost of hiring us. We have seen many variations of the same obscure issues people often run into and know who to go to or where to go to for the most favorable tax deductions and credits.